INSTANT VIEW 3-Czech cbank ups interest rates by 25 bps

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Financial markets had been unsure about the outcome, with a small majority of nine of the 17 CNB watchers surveyed by Reuters last week predicting a quarter-point rise against eight forecasting no change [CNB/INT].

The following are analysts' comments on the rate move:

PETR DUFEK, ANALYST, CSOB BANK, PRAGUE

"The bank board gave priority to rising inflation over the firming crown. The crown will react by strengthening, because the market had rather bet on stability in rates, but the impact on the crown will fade away.

"We expect inflation at year-end above 4.5 percent, and in the first quarter at 6 percent. We expect another CNB step (rate hike) in February. This could wrap up the cycle of monetary policy tightening."

RADOMIR JAC, CHIEF ANALYST, PPF ASSET MANAGEMENT, PRAGUE

"The decision was not easy for the Czech central bank at all. Any of possible decisions were actually sub-optimal vis-a-vis the dilemma of having accelerating inflation with the crown reaching new record strengths at the same time.

"External conditions are worsening with Eurozone growth showing signals of deceleration and the situation of Czech exporters is furthermore complicated by the strong crown.

"As regards local economic policy, fiscal policy will have somewhat restrictive impact on consumption in 2008 and also monetary policy is gradually moving to more restrictive stance.

"All in all it is a bit venomous mix for the Czech economy. Consumer prices will go up further by the end of 1Q 2008, despite the CNB decision -- actually, the central bank will increase interest rates further in 1Q 2008 to respond a 6 percent-region inflation.

"As of 2Q 2008, however, inflation should be under control and on a downward trajectory (with an absence of any serious demand-led inflatioary pressure), with the crown firming to new record highs in 2008. Therefore, the bond market can be somewhat disturbed by the central bank for a while but spring 2008 should shift the sentiment towards a more bullish one."

LAUREN VAN BILJON, ANALYST, 4CAST WEB, LONDON

"As expected, the CNB has voted to raise rates by 25bps to 3.50 percent at today's meeting. It seems that the risks to the inflation outlook (especially from higher food and oil prices) outweighed the dampening effects of the stronger CZK and more uncertain global economic outlook.

"We expect that the vote was very close, and would not be surprised to see that Governor Tuma had to cast a deciding vote.

"The divided market consensus on the outcome suggests we could see some downwards pressure on CZK over the course of the day." (Editing by Alan Crosby)

Keywords: CZECH RATES/INSTANTVIEW 3

[PRAGUE/Reuters/Finance.cz]