July 29, 2019 / 3:03 PM / 5 months ago

Czech rate hikes over for now as ECB, Fed turn to easing; next move unclear: Reuters poll

PRAGUE (Reuters) - The Czech central bank will likely keep interest rates on hold for the rest of 2019 and probably through 2020 as the ECB and the U.S. Fed embark on looser policies, a Reuters poll of analysts suggested on Monday.

FILE PHOTO: The Czech National Bank is seen in central Prague, Czech Republic, August 3, 2017. REUTERS/David W Cerny

All 13 analysts interviewed in the poll forecast the Czech National Bank (CNB) would make no change to the key two-week repo rate CZCBIR=ECI - which stands now at 2.00% after eight hikes since 2017, the last coming in May - when it next meets on Aug. 1.

The bank has said a pause in policy moves could last until mid-2020 as it balances a still solid domestic economy with signs of weakness from the euro zone, global trade tensions and uncertainties over Britain’s divorce from the European Union.

But it has given no firm commitment on a date or any clear indication what its next move might be after the lull.

Seven analysts forecast stability through 2020.

Two expected a hike next year in the second or third quarter while another three saw a cut, coming in either the first or third quarter of 2020. One analyst did not give an outlook.

Another three analysts said rate hikes would continue but not until 2021.

Markets, through forward rate agreements, are pricing in a chance of rate cut by the end of 2019. CZKFRA PRIBOR=

“Given the ongoing foreign uncertainties, ‘wait-and-see’ for forthcoming quarters seems the most likely scenario,” ING analysts said in a report.

The Czech economy has stayed buoyant in the face of softness in the euro zone, particularly in key trading partner Germany.

Unemployment is low and wage growth strong historically, keeping price pressures up. Headline inflation was at 2.7% in June, in the upper range of the bank’s tolerance band around a 2% target.

But the export-reliant economy is highly tuned to the car sector and conditions abroad.

The ECB laid the groundwork for policy easing at a meeting last week and markets widely expect the Fed to cut rates this week for the first time since the depths of the financial crisis more than a decade ago.

Czech central bank Vice-Governor Tomas Nidetzky told Reuters last week that rate stability, as seen by the bank’s own outlook, was still the most likely scenario and that the bank did not automatically have to follow the ECB or Fed.

Reporting by Jason Hovet and Mirka Krufova; Editing by Andrew Heavens

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