Czech crown range-bound as rate hike seen in store

...prospect of another interest rate hike later this year or early next.

Monday's data showed annual inflation accelerated to a 13-month high of 2.8 percent in September, in line with analysts' forecasts in September, while a drop in September's unemployment rate to a decade low of 6.2 percent pointed to a red hot labour market.

The market is pricing in a 25 basis point rise in the main repo rate from the current five-year high of 3.25 percent in November, but several analysts look for no further tightening this year given the crown's 4.5 percent rally since July.

"A rate hike at the (central bank policymakers') meeting on Oct. 25 is very unlikely," said Viktor Kotlan, chief economist at Ceska Sporitelna, forecasting steady rates through end-2007 and a repo rate rise to 3.75 percent by end-2008.

"The market has converged with our trajectory and the opportunity to play a correction on forward rate agreements (FRA) has disappeared," said Kotlan.

The crown was flat at 27.490 per euro by 0755 GMT, safely within a range of between 27.40 and 27.70 it has held since scaling an all-time peak of 27.385 on Sept. 17.

The 3X6 FRA , showing where investors expect three-month lending rates to be in three months' time, inched 1 basis point higher to 3.58/64 percent. Three month deposit rates were at 3.50/60 percent.

[PRAGUE/Reuters/Finance.cz]