By Jan Lopatka
VIENNA (Reuters) - A weaker crown currency may limit the need to ease interest rates, central bank Vice-Governor Miroslav Singer said on Wednesday.
Last week, Singer said the debate at the bank's next policy meeting due on November 6 could be not only about cutting the cost of borrowing again, but also about by how much.
But the Czech crown, dragged down by the Hungarian forint and general outflows from emerging markets in the global financial crisis, has lost 2.6 percent over the past week and is trading 11.7 percent off an all-time high seen in July.
With the crown weakening, Singer said, "we may see less easing needed on our side."
"Probably... we may debate more the normal two alternatives -- to move or not to move," Singer said at the Reuters Central European Investment Summit in Vienna, referring to the central bank's next interest rate meeting.
"The whole picture has changed, on output figures (are) down, but on the other hand on monetary figures, thanks to the exchange rate developments, things are more relaxed. The combination is ... better for moderate changes in monetary policy than before."
Singer added, however, that the environment was changing rapidly amid the global financial turbulence.
Singer was among a minority of bankers who advocated a further 25 basis point rate cut in September.
The crown firmed sharply earlier this year on strong exports and the perception of the central European country as a safe haven, hurting manufacturers who saw their margins squeezed in export markets.
The crown strength, along with a deteriorating growth outlook, was behind the bank's 25 basis point interest rate cut in August.
That brought the main 2-week repo rate to 3.50 percent, below the main euro zone rate even after a 50 basis point cut by the European Central Bank and other global policymakers earlier this month.
But the crown has since dropped, to as low as 25.755 on Wednesday, a level last seen in February.
"Definitely the kind of exchange rate we are observing now seems to be much more natural for our economy than the kind of exchange rate we observed at the peak of summer," Singer said.
"Inflation is unfolding in correspondence with our expectations. We expect a fast fall of inflation and we are inflation targeters, so the exchange rate is so far doing part of our job," he said.
Singer said the bank was likely to revise downward its growth outlook for next year, already among the more conservative among forecasters, when it releases its quarterly forecasts in November. Continued...
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