May 16, 2020 / 7:57 AM / 16 days ago

UPDATE 1-Czech rates should not be cut into negative territory - central bank's Michl

(Adds quote, comment on crown, background)

PRAGUE, May 16 (Reuters) - Czech interest rates have been lowered significantly to combat the fallout of the coronavirus outbreak and should not be cut into negative territory, central bank board member Ales Michl told daily newspaper Mlada Fronta Dnes.

The Czech National Bank has cut its main two-week repo rate by 200 basis points (bps) in three steps since March to cushion the economic hit from the pandemic.

Michl had voted in the minority for a smaller, 50 bps cut at the last meeting on May 7, when the board agreed to a 75 bps reduction.

Michl told the newspaper, in an interview published on Saturday, that he opposed negative interest rates.

“Rates have been cut quite a lot, significantly. But we should definitely not go into negative figures,” he said.

Michl also reiterated his opposition to the central bank intervening against the crown currency, which has weakened more than 7% since the coronavirus crisis became apparent in March.

The central bank ran an intervention regime to keep the crown weak between 2013-2017 while also keeping rates at 0.05%, what it called technical zero, as part of ultra-loose policy to fight deflationary pressures then.

Michl said the economy could start rebounding in the third quarter but he added it would not yet return to pre-crisis growth levels this year.

Data on Friday showed the economy shrank 2.2% year-on-year in the first quarter and analysts see chances of a double-digit fall in the second quarter.

The central bank has forecast an 8% overall contraction for the economy in 2020 followed by a 4% rebound. (Reporting by Jason Hovet; Editing by Pravin Char)

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