POLL-Firm crown seen delaying Czech rate rise into 2007

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The Czech central bank (CNB) will keep policy on hold early next year as inflation is below target while the crown is at record highs, a Reuters poll showed on Thursday.

All 22 economists participating in the survey predicted the seven CNB policymakers would hold the key two-week repo rate at 2.50 percent on Dec. 20, their last gathering for the year and the first after this month's appointment of two new policymakers.

Sixteen predicted a quarter of a percentage point rate increase might come sometime during the first quarter of next year.

Five expected such a rise only in the second quarter. One did not see a rate hike likely before the second half of 2007.

The median forecast put the repo rate at 3.0 percent in 12 months from now, unchanged from a similar poll last month.

Czech official rates have been the lowest in the European Union and a full percentage point below the euro zone equivalent, reflecting the strength of the country's currency, which has tightened credit conditions.

"The CNB appears to be in no hurry to raise interest rates," said Nigel Rendell, senior strategist at Calyon bank. "The governor's recent comments have been dovish."

Governor Zdenek Tuma told Reuters in an interview published on Monday interest rates may rise somewhat less or later than previously thought and that the crown's rise over the past weeks was on the verge of being "totally crazy" [ID:nL11602090].

His remarks re-inforced growing market expectations the bank might wait with any further rate hikes until at least February or March, as its inflation outlook looks set to undergo a downward revision in its next update in January.

The crown has gained 2 percent versus the bank's inflation forecast drawn up in October which used 28.3 per euro rate as the initial assumption. The currency scaled a new lifetime peak of 27.700 to the euro on Thursday .

November annual inflation of 1.5 percent lagged the CNB's forecast by 0.4-0.5 percentage point and undershot the bottom of its target, which aims at 3 percent but includes a tolerance range of one percentage point either side of that level.

The CNB's forecast in October assumed a further gradual rate rise after 75 basis points worth of hikes hikes between October 2005 and September 2006 to prevent economic growth of about 6 percent annual from fuelling unwanted pressures on inflation.

All economists in the poll agreed the CNB would resume tightening next year to track possible interest rate hikes by the European Central Bank and respond to robust manufacturing growth and a revival in consumer spending.

"The CNB will struggle with inflationary pressures arising from accelerating consumption, which will follow the accelerating wage growth," said Vojtech Benda, economist at ING.

ANALYSTS' INDIVIDUAL FORECASTS.................[ID:nL14492131]

[PRAGUE/Reuters/Finance.cz]