RPT-POLL-Most analysts see Czech rates on hold this month

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By Mirka Krufova and Marek Petrus

PRAGUE (Reuters) - The Czech central bank (CNB) is likely to hold interest rates next week, taking advantage of a strong crown currency to pause in its policy tightening after last month's increase, a Reuters poll showed.

Eleven of the 16 CNB watchers surveyed forecast no change in the main two-week repo rate at the policymakers' next meeting on Dec. 19, following November's 25 basis point rise to 3.50 percent, a 5-1/2-year high.

The other five saw the seven-member policy board approving another quarter-percentage point rise to clamp down on inflation expectations in the booming central European economy, where workforce shortages have bolstered employees' pay demands.

The CNB has not changed interest rates at a pre-Christmas meeting since 1998 when it cut the main rate to 9.50 from 10.50 percent. Many analysts also said the board would be loath to tighten policy again less than three weeks since the last rise.

The crown's rally to a lifetime high of 25.933 to the euro on Monday is also likely to dampen policymakers' resolve to bump up rates further, as the currency's strength tames import price inflation and eats into firms' export sales.

"The CNB faces a deadlock of building inflationary pressures and excessive currency appreciation," said David Marek, chief economist at Patria Finance.

"There are two important points: overheating of the economy spinning wage-price inflation and rising inflationary expectations. Now it looks to be only a question of time before the CNB steps in again," said Marek who bets on a February hike.

The crown eased to two-week lows around 26.400 per euro on Friday, but remained 9 percent firmer from this year's trough in July.

Still, analysts said a rate increase next week could not be completely ruled out after soaring food prices boosted annual inflation to a six-year high of 5 percent in November, well above the 4 percent upper edge of the CNB's comfort zone.

"Nevertheless, the crown's development, the structure of price growth with muted demand-side inflation, and growing uncertainty over the 2008 GDP outlook in major economies, should tip the scales in favour of no change in December," said Radomir Jac, chief analyst at PPF Asset Management.

Analysts who disagreed said the board would probably be unwilling to wait almost two months until the next scheduled rate meeting on Feb. 7 to pre-emptively raise interest rates to keep inflation expectations from blossoming.

"Central bankers are less concerned about the strong crown than we had expected and more concerned about inflation expectations," said Miroslav Plojhar, analyst at JP Morgan.

"While inflation expectations of lay people are hard to measure using surveys, the media's attention to soaring prices indicates that inflation expectations are going up in a booming economy with labour shortages and wage pressures," he added.

Of the 11 who expect no rate change in December, 10 forecast a 25 basis point increase in the first quarter and one saw such a hike coming in the second quarter of next year.

The median forecast for the main rate 12 months from now was 4.00 percent, up from 3.75 in the previous poll in November, suggesting two 25 basis point increases over that period.

TABLE with analysts' rate forecasts................[nL14593352]

FACTBOX on profiles of CNB policymakers.........[ID:nL24214784]

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

Keywords: CZECH RATES/