(Adds cbank comments, forecasts, analyst, trader)
* Czech c.bank cuts rates by 50 bps, as expected
* GDP seen down 0.3 pct in 2009, first fall in a decade
* C.bank says rates may be near bottom, crown jumps
By Jan Lopatka
PRAGUE, Feb 5 (Reuters) - The Czech central bank slashed interest rates by another half a percentage point on Thursday and predicted the small European Union newcomer would slide into recession this year for the first time in a decade.
The bank cut its main repo rate to 1.75 percent, matching a record low reached in mid-2005 and 25 basis points below the European Central Bank, which held rates flat on Thursday as expected.
But Governor Zdenek Tuma also said the bank may be near the end of the easing cycle, surprising a market which expected rates to fall toward 1.0 percent in the coming months, and sending the crown currency as much as 1.4 percent higher.
With consumers in their main export market, the euro zone, snapping shut their purses and would-be borrowers increasingly turned away by banks empty handed, all of ex-communist central Europe's economies have watched once rapid growth hit a wall.
The Czech central bank predicted gross domestic product would shrink by 0.3 percent in 2009 and grow by just 0.9 percent in 2010 [ID:nPRA002355]. It saw inflation at 1.4 percent a year from now.
"We have never before seen such pronounced and dramatic anti-inflationary development," Tuma told a news conference.
"The decline is caused by all GDP components ... The bank board saw risks rather in the downward direction."
Previous estimates were for 2.9 and 3.1 percent growth.
The rate cut brought cumulative monetary easing in the Czech Republic to 200 basis points since August.
Analysts expect central Europe's worst off country, Hungary, to slide deep into negative growth territory this year. Even heavyweight Poland, which is less export dependent than the Czechs or Hungarians due to a larger internal market and stronger domestic demand, could face recession.
Analysts said sharply weaker currency rates across the region would slow or halt rate cuts mainly in countries struggling with large balance of payments gaps and large stock of foreign currency loans.
"Pro-inflation pressures are connected mainly with the affect of the weakening crown exchange rate. Therefore it cannot be excluded that we have neared the bottom," Tuma said.
CROWN JUMPS
"I think the pace of easing will probably slow now," said Neil Shearing of Capital Economics. "Central banks across the region, particularly the Czech central bank, have been quite aggressive so far."
The central bank said it predicted the Czech crown, which has lost 5 percent so far in 2009, to trade at an average of 25.8 to the euro this year -- much stronger than today's levels.
The unit jumped to 27.92 following the statement.
"(The forecast) was pretty surprising to the market, along with indications the rate cycle might be near an end," one Prague trader said.
The crown has lost over 4 percent since the start of the year, but it is still the best performer among central European currencies, which have all suffered heavily as investors dumped risky emerging market assets.
The crown has fallen 18 percent since its all-time peak last July, when exporters suffered from what they said was unsustainable currency strength.
The bank does not target any currency level, but pays close attention to crown moves due to their significance for inflation in its open economy. (Additional reporting by Jason Hovet in Prague and Balasz Koranyi in Budapest, editing by Patrick Graham)