*13 of 16 analysts see Czech cbank holding rates next week
*17 of 21 analysts see Hungarian rates on hold next Monday
By Sandor Peto
BUDAPEST, March 19 (Reuters) - The Czech and Hungarian central banks are seen keeping interest rates on hold next week due to recent currency falls, but a deepening recession is expected to prompt further rate cuts later in 2009.
Central European currencies fell sharply in the past months due to concerns over the region's reliance on foreign financing and a string of rate cuts aimed at helping economies weather the impact of the global crisis.
In the past two weeks a global rise in risk appetite helped the units partially recover, but monetary policy makers in the region have warned that a return of currency weakness could lift inflation and pose risks to financial stability.
In a Reuters poll published on Thursday, 13 of 16 analysts projected that the Czech bank, which has cut its main rate by 200 basis points in four moves since August to 1.75 percent, will keep it on hold at its meeting on March 26.
In another poll, 17 of 21 analysts forecast that the Hungarian central bank's (NBH) base rate would also stay unchanged at a meeting on Monday, even though the analysts projected a 4.5 percent economic contraction for 2009, one percentage point more than a month ago.
Earlier polls showed that Romania's central bank is also seen holding fire this month, while the Polish bank is set to continue to cut rates further but moves larger than 25 basis points are unlikely.
"It seems to us that the (Czech) central bank will be reluctant to ease monetary policy further despite (the) economic slowdown," said Piotr Matys, emerging markets analyst at 4cast.
"The main reason is the Czech crown. The bank officials are concerned that significant depreciation could fuel pressure on inflation."
GLOBAL CONSOLIDATION HOPED
All the banks in the region face the same dilemma.
They weigh up cutting rates further to help the economy at the risk of further currency falls and a rise in inflation, or waiting in the hope that global markets consolidate, opening room for monetary easing.
"In the base case, (the Hungarian central bank's) next move will be a cut in about six months," said Gergely Szabo Forian of Pioneer Fund in Budapest.
"If international sentiment improves, that may even happen within three months, but it's also possible that after 12 months rates will stand just where they are now."
Politicians face a similar challenge: lower interest rates could help ease economic pain which is seen touching off protests and may topple governments in the region this summer.
But the currency falls threaten defaults on the foreign currency loans held by a large number of households in some countries of the region, and could exacerbate concern over the stability of the region's economies.
Even though the currency problem came into the limelight recently, analysts said central banks cannot afford to neglect the other key problem of the region, a drastic slowdown in economic growth or recession in some countries, analysts said.
Recession will also put a brake on inflation, they said.
Half of the analysts in the Czech poll said that the central bank will cut again by June as the growth outlook erodes and inflation hits new lows.
The central bank of Hungary, which is in its worst recession since the early 1990s, is also seen cutting rates by one percentage points by the end of 2009, though one month ago analysts saw room for cuts totalling two percentage points.
"(Hungary) might arrive at a double digit output gap at the end of the year, also showing up in inflation and GDP numbers," said Michal Dybula of BNP Paribas in Warsaw. "It's hard to see for now how deep the recession can go."
Interest rate polls: Hungary seen keeping rates on hold, GDP falling [ID:nLJ471101] Czech cbank set hold rates in March, may cut by June [ID:nLJ534558] Polish cbank seen cutting rates by 25bps in March [ID:nL9375473] Romania GDP growth to plunge; CPI, rates to remain high [ID:nL3877463] (Reporting by Sandor Peto; Editing by Toby Chopra)