UPDATE 1-Czech rates stay on hold, markets eye hawkish signs

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PRAGUE, April 26 (Reuters) - The Czech central bank (CNB) kept interest rates on hold for a seventh consecutive month on Thursday, meeting market expectations that low inflation in the booming economy would lead it to defer tightening policy.

Six policymakers attending the monthly policy meeting held the main two-week repo rate at 2.50 percent , the lowest level in the European Union and now a record 125 basis points below the euro zone equivalent.

The seventh policy board member, Mojmir Hampl, was absent.

The crown was flat at 28.135 per euro after the announcement. Money market rates and debt yields also showed no reaction, staying slightly higher on the session overall.

A CNB spokeswoman confirmed the central bank would hold a news conference at 3:30 p.m. (1330 GMT) to elaborate on the rate decision and release a quarterly update to its inflation and economic growth projections for up to 18 months ahead.

Last year's crown rise has helped keep inflation below the bottom end of the CNB's 3 percent target since October 2006, lowering policymakers' appetite for a rate rise after 75 basis points of hikes between October 2005 and September 2006.

But some analysts have said today's news conference statements and the updated forecasts could send modestly hawkish signals to the markets and set the stage for a near-term interest rate rise to prevent robust demand growth from fuelling inflation pressures.

Investors have been betting the CNB will resume policy tightening with a 25 basis point interest rate increase by July.

CNB Governor Zdenek Tuma removed what may have been the last barrier to a near-term rate rise when he said last week recent economic data have heightened inflation risks and interest rates will need to gradually rise to keep price pressures at bay.

The crown has steadied at levels about 2.5 percent below end-2006 record highs to the euro and the economy's 7-year-old expansion appears to be sustaining a robust growth pace after gaining 6.1 percent in both 2005 and 2006.

Annual inflation quickened to 1.9 percent in March, below the CNB's tolerance range of one percentage point either side of the 3 percent goal. But analysts expect price growth to approach the target mid-point later this year.

The strongest retail sales growth in 3-1/2 years, rising producer prices and employment, and a one-day strike over pay at the largest Czech company have all pointed at the risk that rising labour costs and household demand would spur inflation.

Click on [ID:nL26594225] for Factbox giving outline of each CNB board members' policy stance

Click on [ID:nL26200293] for policymakers' recent remarks