CZECH CBANKER REZABEK SAYS PREFERS RATE STABILITY
CZECH CBANKER REZABEK SAYS RATE CUT WOULD NOT BOOST DEMAND, DEMAND HIT BY LACK OF CONFIDENCE
INTERVIEW-Czech cbanker Rezabek: rates should stay flat
* Rate reduction not the right tool to boost demand
* Lack of confidence reason for low demand, credit activity
* Czech rates are at record lows, next rate vote on Nov 3
By Jana Mlcochova
PRAGUE, Oct 24 (Reuters) - Czech interest rates should not drop further below their present record-low levels because such a move would have little impact on the economy, a Czech central banker said on Monday.
In a Reuters interview, Pavel Rezabek said low demand and low credit activity was the result of reduced confidence in the financial sector caused by procrastination in resolving the euro zone debt crisis, and a rate cut would not help to change that.
The bank has kept the key repo rate at a record low of 0.75 percent over the past 17 months, the longest period of rate stability since the repo rate was established in the mid 1990s. The bank next meets on rates on Nov 3.
Governor Miroslav Singer said after the Sept 22 rate-setting meeting that there was now as much chance that the next move in rates could be either a cut or a hike, rather than the tightening the bank had previously signalled.
Rezabek, who has voted with majority for stable rates since the May 2010 rate cut which he supported, said his preferred scenario was no change in policy.
"I would prefer to leave the present level of rates because we can hardly buoy confidence in the economy and the financial sector through further lowering (of rates)," Rezabek said.
"There is an elevated spread between our rates and market rates and I am rather pessimistic that a further lowering in rates would have a more significant impact on increasing credit activity. That is more linked with confidence."
Confidence in the financial sector can only be restored via a "credible solution" of problems of indebted countries, he said.
The crown, which weakened by 0.7 percent since the rate meeting in September, has moderately eased policy, Rezabek said, but he stopped short of commenting on any specific levels.
By 1104 GMT, the crown was 0.11 percent down on the day at 25.00 per euro, a level far weaker than the bank's forecast for the fourth quarter in which it sees the crown at 23.7.
"We will see how this weakening will be assessed from the point of view of inflation," he said.
Consumer inflation stood at 1.8 percent year-on-year in September, below the midpoint of the central bank's 2 percent target range and below the 2.2 percent forecast the bank made in its August quarterly outlook. It was the third month when inflation was below the bank's expectations.
Rezabek said commodity prices were a pro-inflation risk while low demand was a significant anti-inflationary risk but no change could be expected unless there is a revival in confidence in developed countries.
Rezabek had previously spoken in favour of tighter policy, saying rates were "abnormally low" but has not voted for a hike in the present cycle.
"Half a year ago it seemed that Europe would be able to cope with its problems and the risk of inflation was therefore higher than it is now."
"Now we will find it hard to look for arguments to quickly raise rates."
The bank is also expected to release its quarterly economic forecast on Nov 3.
(Reporting by Jana Mlcochova; editing by Anna Willard) ((jana.mlcochova@thomsonreuters.com)(+420 224 190 479)(Reuters Messaging: jana.mlcochova.reuters.com@reuters.net))