UPDATE 1-Czech c.bank says firm crown dampening inflation

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The strong Czech crown is a strong force in dampening inflation in the robust economy, central bank (CNB) policymakers agreed at their Sept. 27 meeting, bolstering the case for at least a brief pause in policy tightening.

"The board discussed the current evolution of the exchange rate and agreed that its present level was strongly anti-inflationary compared to the forecast," minutes from the monthly policy session showed on Friday.

The six policymakers present at the meeting voted unanimously to hold the main two-week repo rate at a five-year high of 3.25 percent , following a 25 basis point hike a month earlier, the sixth such move since October 2005.

The crown barely budged after the release, trading flat on the day at 27.550 to the euro by 0728 GMT, just half a percent off from a life-time high of 27.385 hit in September.

The currency has risen 4.4 percent since July as CNB policy tightening and a global retreat from risk prompted investors to dump crown-funded carry trades which had taken advantage of low Czech rates to profit from locking in higher yields elsewhere.

A rise in the crown cuts prices of oil and other commodity imports and eats into profits in the export-led manufacturing economy, helping offset price pressures stemming from robust household demand and a tight labour market.

The CNB's board reiterated its view that the balance of risks to its policy-relevant measure of core inflation tilted towards the downside, after August inflation came in 0.2 percentage points lower than its staff had forecast.

"The turmoil on global financial markets and the approval of the fiscal reform were identified as events raising the uncertainty of the decision-making process above its usual level," the minutes noted.

Markets are betting September inflation data, due on Monday, will help clarify the near-term outlook for policy and possibly revive the chances of another 25 basis point interest rate hike before the year-end to keep inflation at bay.

Analysts polled by Reuters forecast annual inflation accelerated to a 13-month high of 2.8 percent .

FULL TEXT OF MEETING MINUTES: [ID:nL05461407]

[PRAGUE/Reuters/Finance.cz]