WRAPUP 1-Poles, Czechs keep rates on hold, inflation subdued

* Polish, Czech rates kept on hold, low inflation cited

* Polish central bank: balance of risk tilting towards hike

* Czech bank sees low growth, does not exclude rate cut

By Marcin Goettig and Jana Mlcochova

WARSAW/PRAGUE, Dec 22 (BestGrowthStock) – The Polish and Czech
central banks both left interest rates on hold on Wednesday as
expected, citing low inflationary and wage pressures, but Warsaw
signalled that monetary tightening may not be far off.

In Prague, however, where the Czech central bank voted 6-1
to keep the main interest rate at a record low 0.75 percent,
governor Miroslaw Singer left the door open to further monetary
easing amid concerns over prospects for the euro zone economy.
[ID:nPRG004601]

Poland’s central bank decided to keep its main interest rate
(PLINTR=ECI: ) unchanged at an all-time low of 3.5 percent for the
18th successive month. [ID:nLDE6BL165]

Most analysts polled by Reuters expect the first Polish rate
increase in the first quarter of 2011, a view reinforced by a
rather more hawkish tone in Wednesday’s statement from the
Monetary Policy Council (MPC) and in the governor’s comments.

Commenting on what he said was a decreased risk of strong
capital inflows into Poland in the event of monetary tightening,
governor Marek Belka told a news conference: “This changes
slightly the risk balance in favour of rate hikes or in favour
of the start of a tightening cycle.”

Belka also reiterated his view that the Polish zloty has
strong potential to appreciate.

“After the statement and the governor’s comments we’re
closer to the start of the rate hike cycle,” said Piotr Bujak,
senior economist at Bank Zachodni WBK.

“This sharpening of the tone was not as strong as to make us
expect a rate hike in January. In our opinion it is more likely
in March when (the MPC) will have the inflation projection.”

The MPC only holds a one-day working meeting in February and
is unlikely to decide on rates then.

Consumer price inflation remains a touch above the bank’s
2.5 percent target. In its statement, the MPC said inflation
would accelerate in coming months due to fuel price rises and a
planned increase in the value-added tax from January 1.

POLISH GROWTH, CZECH GLOOM

Economic growth in Poland, the European Union’s largest
ex-communist economy and the only one in the 27-nation bloc to
avoid recession last year, is seen reaching 4 percent in 2011,
up from a forecast of 3.7 percent for this year.

By contrast, the Czech central bank published a surprisingly
downbeat assessment of the economic outlook last month in which
it predicted 2011 growth of just 1.2 percent, down from an
expected 2.3 percent in 2010, partly due to budget cuts.

The Czech economy is also more reliant on exports, mainly to
the euro zone, now mired in a debt crisis, than its much larger
Polish neighbour, where domestic demand plays a strong role.

Czech central bankers voted to keep the key two-week repo
rate (CZCBIR=ECI: ) unchanged for the eighth month running. One
board member voted for a 25 basis point rise.

A majority of analysts believe the Czech bank will begin
tightening monetary policy by the middle of 2011, later than
others in central Europe.

Hungary’s central bank raised its main interest rate by 25
basis points to 5.75 percent on Monday, the second increase in
two months, citing elevated inflationary pressures.
[ID:nLDE6BJ196]

But the bank there is embroiled in a political dispute with
the centre-right Fidesz government, which has called for lower
rates, and plans to replace the MPC in March in a move that may
presage a fresh wave of monetary easing. [ID:nLDE6BJ18W]

The Czech Republic’s Singer emphasised the uncertainties in
the global and European economic outlooks.

“They have the capability to turn into relatively big risks
that may force us into some moves earlier than what we expect
now according to the forecast, whether that be up or down,”
Singer said.

The bank’s latest forecast in November shows a rise in
interest rates starting only towards the end of 2011.

“Any further easing is (or, should be) in our view out of
the question but bankers obviously leave the door open for
anything that may come,” Ceska Sporitelna analyst Martin Lobotka
said in a note following the Czech bank’s news conference.
(Additional reporting by Robert Mueller in Prague and Kuba
Jaworowski in Warsaw)
(Writing by Gareth Jones, editing by Ron Askew;
[email protected]; Warsaw newsroom, +48 22 653 9706))

WRAPUP 1-Poles, Czechs keep rates on hold, inflation subdued