RPT-Czech rates hold flat, c.bank in no rush to tighten

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By Marek Petrus

PRAGUE, March 29 (Reuters) - The Czech central bank (CNB) kept interest rates on hold for the sixth month running on Thursday and re-inforced the market's view that benign price pressures warranted a further delay in policy tightening.

As investors widely expected, all six policymakers present at the monthly meeting voted to hold the policy rate at 2.50 percent , the lowest level in the European Union and a record 125 basis points below the euro zone equivalent.

The seventh board member Robert Holman did not attend.

The CNB has paused following 75 basis points worth of hikes between October 2005 and September 2006 to prevent robust growth from fuelling inflation. Poland and Hungary also held interest rates steady this week, while Slovakia cut by 25 basis points.

Governor Zdenek Tuma said the policy board agreed the upside and downside risks to its inflation projection for up to 18 months -- which will undergo a quarterly revision next month -- were balanced.

"There was an agreement ... we lack significant stimuli to move rates in either direction," he told a news conference.

"Stability is expected in the next few months... but then, in the horizon of a few months, the forecast assumes an interest rate rise," he said, adding this might mean rates could hold steady for one, two, three, four or even more months.

He mentioned a slightly weaker than expected crown, a planned sales tax hike and the outlook for stronger growth and higher interest rates in the eurozone as upside risks.

He added the risks on the downside were softer inflation data, the delayed impact of hikes in the tax on tobacco and planned fiscal restriction.

Inflation has been stuck below the CNB's tolerance range of one percentage point either side of a 3 percent goal since October 2006, reflecting a past firming in the crown which has kept a lid on price pressures in the small and open economy.

The tame price growth and a stable crown currency have led investors to bet that an interest rate hike is almost completely out of the picture for the first half of 2007. The market expects another quarter point hike in July at the earliest.

"We expect that the CNB will eventually hike rates once the upwards trend in inflation becomes more obvious," said Istvan Zsoldos, central European economist at Goldman Sachs in London.

The crown was stable at 28.07 against the euro after Tuma spoke, about 2 percent weaker from life-time peaks reached late last year and early this year.

"The underlying inflation trend is very benign still and CPI should only rise closer to the CNB's target in the last quarter," said Silja Sepping, central European economist at Lehman Brothers, sticking to her forecast of one quarter-point rate hike in the second half of this year.

The consumer price index (CPI) probably went up 1.9 percent year-on-year in March, according to a Reuters poll released on Thursday, extending a gradual up-tick from 1.5 percent in February and a 1-1/2-year trough of 1.3 percent in January.

In its quarterly forecast unveiled in January, the CNB saw economic growth easing to an annual rate of about 5.3 percent after record expansion of 6.1 percent in both 2005 and 2006. It forecast inflation to pick up to about 3 percent by end-2007.

- REUTERS POLL ON DATA DUE OUT IN APRIL: [ID:nL2940601]

- OVERVIEW OF NEAR-TERM ECONOMIC FORECASTS: [ID:nL29735550]

- SUMMARY OF COMMENTS BY CNB POLICYMAKERS: [ID:nL28280579]

- LATEST INTEREST-RATE FORECASTS: [ID:nL21449308]

- FACTBOX ON C.EUROPEAN RATE DECISIONS: [ID:nL23653755]