UPDATE 1-Czech c.bank head warns on wages, calm about crown

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The Czech central bank (CNB) re-iterated its inflation concerns and warned against excessive wage rises next year on Tuesday, highlighting a tightening bias for monetary policy.

Tuma said he and and fellow policymakers had discouraged trade union leaders at an annual round of talks from indexing wages to headline inflation which is seen rising sharply in early 2008 on the back of tax and administrative price changes.

"Our warning, which has been already communicated by some of my colleagues, was that (wage) demands should not be excessive and should not be automatically linked to inflation projections for next year," Tuma told a news conference.

Trade union leader Milan Stech said after the meeting his umbrella trade union organisation expected an 8 percent annual wage growth across the economy next year, up slightly from 7.6 percent in the first half of this year.

Tuma said he did not want to comment on the union's wage projections.

The CNB forecast 3.5-4.9 percent inflation at end-2008 in its forecast made in July, up from September's 2.8 percent.

This year's steady fall in unemployment, to a decade low of 6.2 percent in September, and growing evidence of a shortage of workers in the booming manufacturing and construction sectors have fuelled concerns about wage contagion at the central bank.

NO PANIC OVER CROWN

Tuma also said the CNB had no reason to "panic" over the crown's moves in past months, even though the currency is an important inflation factor in the country's open economy.

The governor said he wanted to draw no dramatic conclusions from the currency's moves and would rather wait for further analysis in a quarterly update of the CNB's economic forecast.

"I never draw any dramatic conclusions (from crown moves). I do not see any reason for the central bank to panic," he told reporters. "We will not re-write the prediction we have from July fundamentally, but some adjustments will be probably made."

A majority of analysts in a Reuters poll expect no rate change at the next policy meeting on Oct. 25 when policymakers will also discuss the quarterly forecast update taking into account the crown's 4.5 percent rally to the euro since July.

The CNB raised interest rates to a five-year high of 3.25 percent in August, but the strong crown and uncertainty fed by the global credit crunch have led policymakers to signal a diminishing scope for more rate hikes.

The crown traded at 27.566 per euro by 1650 GMT, shrugging off Tuma's comments which came after active trading among domestic market participants closed.

[PRAGUE/Reuters/Finance.cz]