UPDATE 1-Time nearing for Czech rate hike - c.banker quoted

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The Czech central bank (CNB) may soon raise its interest rates because inflation-dampening factors such as currency strength have faded away, Bloomberg quoted CNB Vice-Governor Miroslav Singer as saying.

"Signals have started accumulating in one direction: toward an increase," Singer, perceived as one of the dovish members of the seven-strong policy board by the market, told Bloomberg in an interview.

"There are tiny puzzle pieces indicating that anti-inflationary risks are difficult to identify," he added.

The comments were in line with an article he and board member Vladimir Tomsik wrote in the daily Hospodarske Noviny on Thursday.

Singer said earlier this year he had been on the lookout for possible currency strengthening or a drop in oil prices, which would dampen inflation, but none of that has occurred.

"The anti-inflationary uncertainties have faded away one after another," he said.

The main two-week repo rate stands at 2.5 percent, the lowest in the European Union, but two out of six central bank board members present at last month's policy meeting voted for a hike. The majority of four members voted to keep the rate unchanged for the seventh consecutive month.

Investors have raised their bets on a near-term monetary tightening since then.

Inflation hit a 7-month high of 2.5 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 market now expects that the bank may raise rates already at the next policy meeting on May 31. That would follow increases totalling 75 basis points between October 2005 and September 2006.

Singer said the bank's April quarterly economic forecast seeing a 4.9-6.5 percent gross domestic product this year and 3.8-6.8 percent growth in 2008 may be a little too conservative, given good financial condition of companies, cheap credit and rising consumption and wages.

[PRAGUE/Reuters/Finance.cz]