RPT-POLL-Analysts split on whether Czech rates to rise in Nov

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By Mirka Krufova

PRAGUE (Reuters) - Analysts are almost evenly split on whether the Czech central bank (CNB) will raise interest rates next week even though the crown has risen to record levels, a Reuters poll showed on Wednesday.

Nine of the 17 CNB watchers surveyed forecast a 25 basis point rise in the main two-week repo rate at the policymakers' next meeting on Nov. 29. The other eight saw rates on hold this month at 3.25 percent, following 150 basis points of increases in the past two years.

Many analysts said the vote on the seven-member CNB policy board was a close call, and they expected a 4-3 split decision in favour of either a rate increase or no change.

"The situation is really difficult for central bankers," said David Marek, chief economist at Patria Finance in Prague. "The economy surpassed its potential output and inflationary pressures are looming ... On the other hand, there is a strong crown as an obstacle and moving interest rates upwards can fuel further appreciation."

The crown has risen 7.5 percent from this year's lows in early July to a lifetime peak of 26.53 against the euro this month, as investors moved away from the dollar and into the perceived safe haven of the Czech currency.

It traded around 26.77 per euro at midday on Wednesday.

However, the outlook is for inflation to leap next year well above the 4 percent upper boundary of the CNB's comfort zone. This justifies a rate rise to anchor inflation expectations at a low level, said Marek and the other analysts who forecast such a move.

"The stronger crown does play in favour of keeping rates on hold once again, but we feel the macroeconomic environment, as well as the 2008 inflation outlook, demands higher rates," said Lauren Van Biljon at 4CAST consultancy in London.

Economists who expect rates to remain steady this month cited the strong crown's inflation-dampening effect, and the risk of higher rates fuelling a further rise, as the main reason for their forecast.

"The risk of further crown appreciation, with an adverse impact on the economy, if the CNB raises rates on Nov. 29 is currently somewhat bigger than a risk of waiting for one more month," said Radomir Jac, chief analyst at PPF Asset Management.

Of the eight who expect no rate change in November, three predicted a 25 basis point increase in December and five said it was likely to be delayed until the first quarter of next year.

The median forecast for the main rate 12 months from now was 3.75 percent, unchanged from the previous poll in October, suggesting two 25 basis point increases over that period.

TABLE with analysts' rate forecasts....[nL21685755] FACTBOX on profiles of CNB policymakers.........[ID:nL24214784]

(Reporting by Mirka Krufova; Writing by Marek Petrus; editing by David Stamp)

Keywords: CZECH RATES/