UPDATE 2-Missing Czech cbanker may tip balance to hawks

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By Alan Crosby

The Czech central bank said on Thursday that one of the 7 board members will miss a May 31 monthly policy meeting, possibly tipping the balance of power toward hawks amid mixed signals of a possible interest rate hike.

The central bank (CNB) said Vladimir Tomsik will not attend the meeting. It gave no reason for his absence. The bank has a policy of not commenting on board member absences.

In April policymaker Mojmir Hampl was absent for the monthly meeting where the board voted 4-2 in favour of holding interest rates steady.

But a Reuters poll released on Wednesday showed analysts think the CNB will narrowly decide in favour of raising the lowest interest rates in the European Union to a more than 4-year high to tame resurgent inflation.

Tomsik is seen as leaning towards the dovish wing of the board and is cautious about tightening policy. He has repeatedly criticised the CNB's track record of undershooting its inflation target and missing inflation forecasts.

"This could be the factor that tips the decision onto the side of a rate hike, with Governor (Zdenek) Tuma seen as a hawkish moderate by the market," said Lauren Van Biljon, an analyst at 4castweb.

"Tuma has refrained from speaking so far, although we've heard from 5 other board members in the run-up to the board meeting...(Miroslav) Singer, Tomsik, Hampl and (Robert) Holman all struck rather dovish tones overall, while (Ludek) Niedermayer was strongly hawkish."

END OF PAUSE?

The Czech economy has been booming, supported by an upturn in the neighbouring EU economies and rapid expansion of credit to households to finance home building and consumer purchases.

Growth is seen sustaining a robust 5-6 percent pace after expanding at a record 6.1 percent clip in both 2005 and 2006.

The two-week repo rate , the central bank's tool for draining extra liquidity from the open money market, has held flat following increases totalling 75 basis points between October 2005 and September 2006.

"The economic factors behind a rate rise are clear. What is unclear is the exact number of hawks and doves on the board. If one (dove) is missing, I think the board is split 3-3," said David Marek, chief economist at Patria Finance.

"Then what will be important is the vote of Governor Tuma (which counts as two votes in case of a tie). My guess is that he is likely to be one of the hawks. So the news that Tomsik will be missing increases the probability of an increase in interest rates."

The pause in the CNB's hiking cycle has reflected a sharp rise in the crown currency to record highs in late 2006, which cut imported inflation in the very open economy and offset any price pressures stemming from domestic demand growth.

But the crown has seen a 3 percent slide from record peaks, while a rebound inflation to near the CNB's 3 percent target, falling unemployment and record-strong growth in retail sales have all lead investors to gear up for an imminent rate rise.

[PRAGUE/Reuters/Finance.cz]