Czech central bank holds rates steady amid rising COVID-19 threat

By Jan Lopatka and Robert Muller

PRAGUE, Sept 23 (Reuters) - The Czech National Bank (CNB) held interest rates steady on Wednesday in the face a surge in new COVID-19 cases, believing that the country will avoid another economy-wide shutdown and continue its recovery.

The bank board voted 7-0 to leave the key two-week repo rate CZCBIR=ECI at 0.25% for a third straight meeting.

Governor Jiri Rusnok said the bank thought lockdowns to fight the spread of new coronavirus infections were not on the agenda again, after tight restrictions at the outset of the pandemic pushed the economy into a record contraction.

The Czech Republic has seen a sharp spike in COVID-19 cases that has already doubled the country's overall tally in September. Per capita, cases are rising at the second fastest rate in Europe.

"The price we would pay for blanket, very restrictive measures, is simply huge and it has to be considered in this context," Rusnok said.

"We are convinced that there won't be any blanket closures, neither in our economy, nor in relevant economies around us."

Rusnok said consumers worried over their futures could become a constraint on the economy, while there could be hits from partial shutdowns of schools and other institutions.

The export-reliant economy contracted 11% year-on-year in the second quarter when the pandemic forced the temporary closure of businesses and idled factories.

New COVID-19 cases have spiked to more than 3,000 a day in the country of 10.7 million which got through the first wave with a daily rise of no more than 377. Laxer restrictions over the summer have helped the virus's resurgence.

The government has aimed to avoid restrictions that might damage business. It has introduced limits on restaurant and bar opening hours and public events.

After 200 basis points in cuts in the spring, analysts forecast steady monetary policy throughout this year and 2021 but say uncertainty is high.

Inflation remains above 3%, outside the upper end of the bank's tolerance range around its 2% target.

The crown EURCZK= has eased sharply recently, weakening past 27 to the euro this week for the first time since May. It firmed over half a percent to 26.87 in afternoon trade.

Rusnok said the recent weakening was not surprising.

The bank's latest outlook, which saw an 8.2% economic contraction this year and 3.5% rebound in 2021, had assumed an average exchange rate of 26.7 during the third quarter.

(Reporting by Robert Muller and Jan Lopatka, writing by Jason Hovet; Editing by Toby Chopra)

((jason.hovet@thomsonreuters.com; +420 234 721 613;))

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