September 23, 2019 / 10:20 AM / 23 days ago

Czech central bank seen holding fire through 2020: Reuters poll

PRAGUE (Reuters) - The Czech National Bank (CNB) is likely to hold interest rates unchanged through 2020 as it balances inflationary pressures at home with policy easing and economic weakness abroad, a Reuters poll showed on Monday.

The central bank has paused its two-year tightening cycle since delivering a rate hike in May, when it raised the key two-week repo rate CZCBIR=ECI by 25 basis points to 2.00%, the highest since 2008.

All respondents in the Reuters poll see the bank holding fire at this year’s three remaining policy meetings.

Eight of the 13 analysts see the main rate also remaining at its current level for the whole of 2020.

Two analysts forecast the bank’s next move would be an interest rate cut coming in the first quarter of 2020, and one analyst saw a cut coming in Q2 next year.

Central bankers who have spoken since their last meeting on Aug. 1 have said they would now like rates kept stable.

The Czech economy, like others in central Europe, has maintained solid growth thanks to falling unemployment and fast-rising wages boosting domestic consumption. Inflation has been at or above the central bank’s 2% target for much of the past two years and was 2.9% year-on-year in August.

The central bank targets inflation at 2% with a tolerance band of one percentage point in both directions.

But the country is facing headwinds from a sharp slowdown affecting key trading partners, particularly Germany, which is on the edge of recession. The European Central Bank and U.S. Federal Reserve are loosening their monetary policies to counter rising risks from global trade tensions.

The Czech central bank board will assess risks to staff macroeconomic forecasts at its meeting on Wednesday. A quarterly update to the outlook is due in November.

“Long-term stability of rates is the most likely scenario, we can imagine one ‘pre-emptive’ cut in the second half of the next year should the euro zone slow down markedly,” said Jakub Seidler, ING chief economist.

“The crown will be the main factor making us expect no aggressive easing from the central bank in the next year.”

The Czech currency EURCZK= has not met the central bank’s expectations for strengthening in recent quarters, thus contributing to inflationary pressures in the domestic economy via prices of imports.

(Graphic: Crown defies CNB outlook, here)

Reporting by Mirka Krufova and Robert Muller; Editing by Catherine Evans

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