UPDATE 1-Czech c.bank ups rates by 25 bps to tame inflation

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By Marek Petrus

The Czech central bank (CNB) raised interest rates by 25 basis points on Thursday, responding to buoyant consumption and resurgent inflation as markets expected.

Policymakers hiked the main two-week repo rate by 25 basis points to 2.75 percent, resuming a tightening of policy after inflation picked up to within the tolerance range of one percentage point either side of the CNB's 3 percent goal.

The crown ticked higher to 28.343 per euro by 1017 GMT from 28.360 just before the news. Money market rates and debt yields were little changed.

The move puts Czech rates at their highest in more than four years, but still 100 points below the main euro zone rate.

The CNB called a news conference for 3:30 p.m. (1330 GMT) to elaborate on the decision and say how the six policy board members who attended the meeting voted.

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

The economy has been booming and looked to be sustaining 6 percent annual growth in early 2007, supported by an upturn in neighbouring EU economies and rapid expansion of credit to households to finance home building and consumer purchases.

Inflation has rebounded and hit a 7-month high of 2.5 percent in April. Wednesday's Reuters poll showed inflation was expected to have remained at 2.5 percent in May. [POLL/CZ]

The poll participants estimated the unemployment rate would fall to a new long-term low of 6.5 percent from 6.8 percent last month, a sign the strong economy was drying up the pool of available labour. Analysts and central bankers worry that this may boost wage demands.

The CNB's seven-member panel was seen as split over the need for an immediate tightening of policy, but markets had concluded that hawks would prevail due to the absence of dovish-leaning Vladimir Tomsik at the meeting on Thursday.

With an even number of board members present, the way Governor Zdenek Tuma -- widely believed to be a moderate hawk -- casts his ballot would have been the deciding factor in case of a tie.

Eighteen of the 20 central bank watchers polled by Reuters last week had predicted a quarter-point rate hike. One analyst saw such a rate rise as likely in either June or July and another one said it would only come in July. [CNB/INT]

Forward-looking money market rates are pricing in another rate hike to 3.00 percent by August, and additional increase to 3.25 percent by December, according to Reuters data.

CNB BOARD MEMBERS RECENT REMARKS ON POLICY...[ID:nL31243192]

POLICYMAKERS' PROFILES........................[ID:L31231601]

ANALYSTS' INTEREST RATE FORECASTS..................[CNB/INT]

Keywords: CZECH ECONOMY/CENTRALBANK RATES

[PRAGUE/Reuters/Finance.cz]