UPDATE 1-Czechs hold rates flat, mkt eyes clues on next hike

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By Marek Petrus

PRAGUE, June 28 (Reuters) - The Czech central bank (CNB) left interest rates unchanged on Thursday, taking a breather after a quarter of a percentage point rise in May to contain budding inflation pressures in the prosperous economy.

Policymakers held the two-week repo rate at 2.75 percent , the lowest level in the European Union, matching widespread market expectations they will wait for a July update of inflation projections before possibly tightening further.

The CNB called a news conference for 3:30 p.m. (1330 GMT) to elaborate on the decision to keep the main rate at its highest in more than four years but still a record 125 basis points below the euro zone equivalent.

Investors are waiting to see if the CNB confirms the prevalent market view that another rate hike is on the cards.

Only five of the seven board members were at the meeting. Vice-Governor Miroslav Singer, a moderate now showing signs of hawkishness, and dovish member Robert Holman did not attend.

The incomplete board and the crown's 4 percent fall to the euro this year had fuelled jitters in markets that a surprise hike to 3.0 percent might come at Thursday's meeting. A weak currency fans inflation concerns in the open economy.

The crown was a touch weaker at 28.635 against the euro after the rate decision, having recovered from 15-month lows in the previous session. It has suffered from the yield discount which has reduced its allure to investors.

Debt yields and money market rates showed scant reaction.

Markets have been gearing up for higher interest rates in coming months after consumers helped propel the economy in early 2007 to an eighth consecutive quarter of annual growth at more than 6 percent.

Consumer inflation has picked up to within the tolerance range of one percentage point either side of the CNB's 3 percent goal, mainly due to higher cigarette taxes and a rise in electricity costs and other government-regulated items.

Inflation eased to 2.4 percent in May from a seven-month high of 2.5 percent a month earlier. However, a CNB forecast in April saw annual growth in consumer prices at 3.2-4.2 percent at end-2007.

Policymakers have said the weak crown, the firm economy and rising household spending, fed in part by a consumer credit boom, would require a further gradual rise in interest rates over the coming year and a half to keep inflation at bay.

Profiles of CNB board members: [ID:nL28883806]

Board members recent remarks on policy: [ID:nL28700042]