Czech c.bank sees rates rising to neutral levels

...observed in the past have diminished, minutes to the central bank's (CNB) meeting on May 31 showed on Friday. As the CNB announced last week, Governor Zdenek Tuma cast the decisive vote at the meeting to raise interest rates by 25 basis points to a more than 4 year high of 2.75 percent , amid buoyant consumption and resurgent inflation in the economy.

"The majority of the board members agreed that the past downside risks to inflation were abating," the minutes said.

"It was argued that these downside risks had allowed interest rates to be kept below their equilibrium level and that their abatement meant convergence of current interest rates to these monetary policy neutral rates," it added.

Economists have said policy neutral rate levels in the Czech economy have been below but close to 4 percent, although they could somewhat fall to reflect a cut in the central bank's inflation target to 2 percent as of 2010 from current 3 percent.

At last week's meeting, the board -- missing one of 7 members -- was evenly split in an interest rate vote for the first time in nearly 6 years.

Two members voted with Tuma for a 25 basis point hike, while the remaining three members wanted to keep policy on hold. The way the governor -- or the highest ranking member in his absence -- casts his ballot is decisive in case of a tie.

FULL TEXT OF CNB MEETING MINUTES................[ID:nL08681605]