UPDATE 1-IMF sees Czech 2008 GDP growth at 4.5 pct y/y

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The Czech Republic should see economic growth of 4.5 percent next year, although the external environment poses a downside risk to that forecast, the International Monetary Fund (IMF) said on Tuesday.

Subhash Thakur, division director at the IMF, told a news conference that the Czech central bank will have to continue tightening monetary policy in the face of an expected sharp pickup in inflation.

He added that the government must also do its part to help the economy by speeding up reforms to help fiscal consolidation.

"The economy is likely to slow, but continue to grow at a fairly solid pace," he said. The IMF has forecast 5.6 percent growth for the Czech economy this year.

Thakur said the main change in economic picture in 2008 will be a sharp pickup in inflation to 5 percent due to rising global energy and food prices, and increases in taxes.

This, he said, would make the task of monetary policy difficult, but the central bank "will have to keep tightening".

Czech interest rates are the lowest in the European Union with the key two-week repo rate at 3.25 percent after a 25 basis point increase in August. Many analysts expect the central bank to raise rates later this month.

Thakur said recently approved tax changes were a positive step, but they fell short for fiscal consolidation prospects over the medium-term. "The government needs to continue more ambitiously on expenditure restraint to achieve the fiscal consolidation that is needed," he said. (Reporting by Marek Petrus; Writing by Alan Crosby; editing by David Stamp)

Keywords: IMF CZECH/

[PRAGUE/Reuters/Finance.cz]