POLL-Czechs seen raising int.rates by June on high CPI

...

The Czech central bank (CNB) is very likely to raise interest rates by 25 basis points by June after inflation quickened more than forecast to hit a 7-month high in April, a Reuters poll of 19 analysts showed on Thursday.

The booming economy, resurgent inflation and the fall in the number of jobless to the lowest for the month of April in eight years have all led investors to gear up for a near-term rise in credit costs, currently the lowest in the European Union.

Seven CNB watchers predicted policymakers would agree to raise the main repo rate to 2.75 percent at their May 31 meeting, after pausing since a cumulative 75 basis points policy tightening between October 2005 and September 2006.

Four other analysts said a quarter point rate increase would come in either May or June, three expected the move in June, one in June or July and another three in July. The remaining analyst did not expect a rise until the fourth quarter of this year.

April inflation data released earlier on Thursday confirmed a resurgence of price growth and sent money market rates and debt yields to multi-month highs, showing the likelihood of a rate increase in May at about 90 percent.

"We bring forward our rate hike forecast from June to this month, and the (inflation) data increases the chances of an accelerated rate hike schedule after that as well," said Istvan Zsoldos, central European economist at Goldman Sachs in London.

"The recent data confirms the increasing and fairly widespread inflation pressure ... we expect inflation to reach the 3 percent target by the end of this year," he added.

'MORE THAN ONE NUMBER' NEEDED?

The year-on-year growth in April shop prices overshot the market's forecast of 2.2 percent as well as the CNB's estimate of 2.1-2.2 percent, as it returned to the CNB's tolerance range of one percentage point either side of 3 percent.

Two members of the seven-strong CNB policy board voted for a 25 basis point rate rise at the April meeting, and analysts said the inflation data -- and a fall in unemployment also reported on Thursday -- gave the hawks a powerful argument.

But those who forecast steady rates in May said the dovish members of the board would likely hamper a rise in borrowing costs until more data, especially on economic growth and wages, confirm that price pressures are indeed on the rise.

"The board seems to be divided into two almost equally sized groups now. I think it will take more than today's inflation number to get the group that is now opposing the hikes to move," said Viktor Kotlan, chief economist at Ceska Sporitelna.

He said first-quarter gross domestic product data, due out on June 8 and likely to show accelerating consumer spending, might open the door to a rate rise. But he still expected the doves would prefer to wait for the next inflation forecast update in July before hiking again.

FOR DETAILED FORECASTS, DOUBLE-CLICK ON [ID:nL10503700]

Keywords: CZECH ECONOMY/INFLATION RATES

[PRAGUE/Reuters/Finance.cz]