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Czech Sentiment Improves as Policy Makers Mull Rate Cut

Aug. 24 (Bloomberg) -- Czech economic sentiment improved for the first time in five months in August as the central bank signaled more monetary policy easing amid a lengthening recession.

The composite indicator of business and consumer confidence increased to minus 3.6 from minus 3.8 in July, the Prague-based statistics office said in a statement on its website today. The business-confidence indicator rose to 2.4 from 2.3, while the gauge for consumers improved to minus 27.3 from minus 28.3. The confidence indicators may range from minus 100, if all respondents are pessimistic, to 100, if all are optimistic.

The economy shrank 0.2 percent in the second quarter from the previous three months, the third consecutive contraction, as households curbed spending in response to Europe’s worsening economy. The Czech Republic relies on the 27-nation European Union to buy 80 percent of exports, including from companies such as carmaker Skoda Auto AS.

Policy makers were split at their last meeting on Aug. 2 in assessing the effect of government tax increases on inflation and risks stemming from the euro-area debt crisis. Two rate setters sought a quarter-point reduction after the bank cut its two-week benchmark to a record-low 0.5 percent in June, while four voted for no change even as the bank’s forecast saw lower rates amid a worsening economic outlook.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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