HIGHLIGHTS-Reuters interview with Czech c.bank Vice-Governor

...raise interest rates from the lowest level in the European Union any time soon.

The key policy rate has been held since September 2006 at 2.5 percent, now a record 125 basis points below the euro zone equivalent.

The following is a selection of comments from the interview which was conducted on Friday.

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ON LATEST ECONOMIC DATA AND INFLATION RISKS:

"The economy is more or less in its convergence equilibrium. At the moment it seems that GDP (gross domestic product) is being increasingly driven by domestic factors -- consumption, which is probably slightly fed by credit expansion.

"So far, I have not been in any way surprised by GDP data.

"I do not see any big danger on the wage level ... It does not seem to me to be a cause for concern.

"I received no dramatic news. I received new information, which shifted the outlook in the sense that the anti-inflationary risks have slightly weakened in the short term.

"But none of the news was strong and all in all they are a little bit mixed."

ON NEAR-TERM OUTLOOK FOR POLICY:

"We are driving a car on a straight motorway and there is no turn in sight.

"The next move may go in either direction, because interest rates are more or less well set at the moment. So now I see stability, over the longer run I can imagine rates heading higher rather than lower given the cyclicality of economic developments.

ON A SWITCH TO 2 PERCENT INFLATION TARGET FROM 2010:

"Some of my colleagues and the market did not seem to view the (3 percent) target as entirely symmetrical. I think the advantage of the 2 percent target will be that it will be seen as symmetrical. Inflation below 1 percent is troublesome. The economic analyses of measurement of inflation show that inflation below 1 percent means de facto deflation.

"If this holds, then the new target will mark an even smaller shift than we realise, because if the current one is seen as asymmetrical by a number of subjects, then it actually means that it will not be a move by 1 percent, but by less.

"I am a little bit hoping that inflation expectations will be more firmly fixed at a lower level. This in itself is an anti-inflationary factor if successful.

ON IMPACT OF LOWER CPI TARGET ON MONETARY POLICY:

"I believe that it will have no big impact at the moment and later, it will be a mixed impact of monetary policy, a tighter target, and lower inflation expectations, and the lower inflation expectations will push monetary policy rather lower.

"On balance, I think the impact will be far lower than is currently expected."

ON CROWN WEAKENING IN EARLY 2007:

"It is true the crown is slightly weaker, after all the (negative interest rate) differential is starting to help a little bit. But it is also true that inflation is below target, so the picture is changing slightly but there is no cause for concern."