Short Czech rates shed gain on moderate cbank talk

...an imminent interest rate increase to tame resurgent inflation.

Two-year interest rate swap rates , one of the most sensitive instruments to shifts in market perceptions on monetary policy, shed 2 basis points to trade largely flat on the day at 3.41/3.47 percent by 1415 GMT.

Hampl told Reuters in an interview the CNB need not panic over a sharper than expected pick-up in inflation and can wait for more data before resuming policy tightening [ID:nL14575762].

His views were at odds with market perceptions that the CNB could raise its policy rate by 25 basis points from 2.50 percent as soon as May 31.

But traders said a rise in benchmark euro zone debt yields amid a bearish debt market sentiment globally [GVD/EUR] muted the Czech market's reaction to Hampl's remarks which still confirmed that interest rates are likely to rise by July.

"Hampl is only one seventh of the CNB board and I think there is not much room for rates to fall now," said Dalimil Vyskovsky, debt trader at Komercni Banka.

"Firstly, there were already two board members voting for a hike at the last meeting. Secondly, it does not seem to be overly significant to the market whether policy rates will go up in May or -- because of Hampl -- a month or so later," he added.

Investors raised their bets on a near-term rate rise after inflation hit a 7-month high of 2.50 percent in April -- above both market and CNB forecasts -- and the number of unemployed fell to the lowest for that month in eight years.

The crown held flat at 28.285 per euro , despite a half a percent firming in the neighbouring Slovak counterpart and the Hungarian forint .

The crown has moved out of synch with other central European currencies in recent months, as a record, 125 basis point rate gap versus higher euro zone credit costs encourages investors to sell the Czech currency for higher-yielding assets elsewhere.

----------------- MARKET SNAPSHOT AT 1410 GMT ----------------- Crown/euro last deals at 28.285 (-0.05 pct) Crown/dollar at 20.866 bid (+0.11 pct)

5-year yield due Oct 2010 3.75 pct bid (+7 bps) 10-year yield due Jan 2016 4.07 pct bid (+5 bps)

5-yr CZK/EUR mid yield spread -50 bps (vs -54) 10-yr CZK/EUR mid yield spread -18 bps (vs -21)

Current levels versus prior domestic close at 1500 GMT ---------------------------------------------------------------

[PRAGUE/Reuters/Finance.cz]