RPT-POLL-Czech CPI seen on rise, boosting int.rates, crown

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By Mirka Krufova

Czech inflation looks likely to near the upper end of the central bank's tolerance range later this year, leading policymakers to keep raising European Union's lowest interest rates, a Reuters poll showed on Tuesday.

Fourteen analysts in the half-yearly survey of the economy's medium-term prospects gave a median forecast of 3.7 percent annual growth in the consumer price index (CPI) at end-2007, up sharply from 2.5 percent in June.

In 2008, inflation was expected to ease to 3.4 percent, but several economists cautioned tax hikes -- to be debated by parliament as part of a fiscal reform package later this month -- could yet result in faster price growth.

"Inflation should continue its rising trend and peak at 4.5 percent year-on-year in the first quarter of 2008. It should be above 3.5 percent at the end of this year," said Jiri Skop, analyst at Komercni Banka.

The estimates were for slower inflation than projected by the Czech central bank (CNB), whose primary goal is to keep price growth within 1 percentage point either side of 3 percent.

Late last month, the CNB predicted the headline CPI will rise to 3.5-4.2 percent at end-2007 and 3.5-4.9 at end-2008.

Analysts mostly counted on the crown to resume its long-term appreciation and help choke price pressures stemming from robust expansion in the domestic economy, which has enjoyed eight consecutive quarters of growth topping 6 percent annually.

Gross domestic product (GDP) growth was seen slowing to 5.6 percent in 2007 and 5.0 percent in 2008 from 6.4 percent in 2006.

While the CNB envisaged crown stability around current levels of 28.1 against the euro , analysts looked for the currency to firm to 27.7 by the year-end and hit lifetime highs around 27.0 by end-2008.

Nigel Rendell of Calyon broke ranks with most analysts in the survey, expecting the crown to fall to 29.0 by the end of this year and 30.0 by the end of next year.

"Interest rate differentials do not argue in favour of a firmer Czech currency," he said.

The median forecast for the CNB's main two-week repo rate at the end of this year was 3.25 percent, a quarter of a percentage point higher than the current 3 percent , which is one percentage point below the benchmark euro zone level.

By end-2008, the CNB was seen hiking to 3.75 percent.

OVERVIEW OF ANALYSTS' MEDIUM-TERM FORECASTS....[ID:nL07256844]

Keywords: CZECH ECONOMY/FORECASTS

[PRAGUE/Reuters/Finance.cz]