UPDATE 1-Czech c.banker eyes rate rises, local inflation key

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By Petra Vodstrcilova

The Czech central bank (CNB) has little reason for concern over the impact of global credit market turmoil on the domestic economy, which is growing fast with rising inflation, CNB policymaker Vladimir Tomsik said on Friday.

Speaking on a morning talk-show on the Czech Television, he said that when setting interest rates, policymakers were focusing on the outlook for inflation in the next 12-18 months and analysing domestic monetary conditions.

Tomsik reminded markets of the CNB's hawkish bias, saying its forecast of a rebound in inflation toward the upper margin of its comfort zone later this year implied a further rise in interest rates.

"There is no specific link of the present developments in the mortgage markets in the West with the present development of interest rates in the Czech Republic," said Tomsik.

A credit and liquidity squeeze, parked by problems in the risky U.S. subprime mortgage market, has forced the world's leading central banks to pump billions of cash into the global financial system.

"There is robust economic growth (in the Czech Republic) and we have a new inflation forecast. We set interest rates based on domestic conditions," said Tomsik.

"The present inflation forecast is consistent with a rise in interest rates," added the policymaker whom markets regard as rather neutral, possibly tip the balance of an upcoming interest rate decision.

The CNB's seven-member policy board next meets on Aug. 30.

However, investors have been uncertain whether board members see inflation pressures strong enough to warrant a second rate rise in as many months after July's quarter point hike in the policy rate to 3 percent.

Financial markets have priced in no policy change at the August meeting, while fully discounting a 25 basis point rate increase at the subsequent meeting in September.

Policymakers' hawkish statements over the past weeks have raised the spectre of further tightening to tame price pressures stemming from fast, 6 percent annual economic growth and labour shortages in many industries, which could fuel wage demands.

Tomsik also said the government and the parliament took "the right step" to avert a potential public finance crisis by passing a tax overhaul and welfare cuts to cut the budget deficit towards the EU's limit of 3 percent of GDP next year. FACTBOX on profiles of CNB policymakers........[ID:nL28883806] Report on fiscal reforms........................[ID:nL2138103]

Keywords: CZECH CENTRALBANKER/

[PRAGUE/Reuters/Finance.cz]