UPDATE 1-Czech FinMin ups growth fcast, sees rate rise

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PRAGUE, April 27 (Reuters) - The Czech finance ministry raised its forecast on Friday for this year's economic growth and said official interest rates were expected to rise slightly in the second half of the year as inflation creeps higher.

Gross domestic product (GDP) growth is now predicted to be 5.3 percent against a previous forecast of 5.0 percent, the ministry said in a quarterly update of its economic outlook.

The forecast, which the government uses to draft the budget, saw the economy slowing further to 4.9 percent growth in 2008 after it expanded at a record annual clip of 6.1 percent in both 2006 and 2005.

"The new macroeconomic prediction is based on the assumption of a slight increase in interest rates from the second half of 2007," the ministry said in a statement accompanying the report.

The central bank (CNB) held interest rates at 2.50 percent for a seventh consecutive month on Thursday but gave markets the strongest signal to date it was ready to tighten policy soon to keep inflation at bay.

The ministry cut its estimate for average annual inflation in 2007 to 2.1 percent from the 2.4 percent envisaged in the January update, but said price growth will quicken to 3.2 percent in 2008, up from a previously expected 3.0 percent.

Inflation was 1.9 percent year-on-year in March.

The CNB raised on Thursday its forecast for inflation to 3.2-4.2 percent in December 2007 and predicted 2.7-4.1 percent price growth in December 2008, saying robust demand was fuelling inflation pressures.

The CNB has sounded more bullish on growth than the finance ministry. It said on Thursday the economy's 7-year-old expansion appeared to be sustaining a higher than expected growth pace.

The CNB raised its 2007 GDP growth outlook to 4.9-6.5 percent from 4.4-6.2 percent at its previous quarterly forecast update in January. For 2008, it saw 3.8-6.8 percent expansion, up from 3.1-6.5 percent envisaged in January.