RPT--Czech rates seen on hold in Oct but hikes in store

(Repeats story published on Oct 20)

By Marek Petrus

PRAGUE (Reuters) - The Czech central bank (CNB) will most likely keep interest rates on hold this month, a Reuters poll showed on Friday, but a slim majority of analysts forecast further tightening before the year-end to keep inflation at bay.

Only two of 24 economists in the survey predicted a 25 basis point increase when CNB policymakers gather on Oct. 26. The rest saw the main policy rate remaining at 2.50 percent, after 25 basis point increases in July and September.

Those 22 analysts, as well as forward market rates, anticipate the CNB will hold fire because of a forecast fall in inflation below the bank's 3 percent target mid-point before the year-end and an increase in market interest rates since July.

But some said CNB hawks could call for another rate rise this month, and there may be only a narrow majority in favour of no change at the meeting, which also features a quarterly update to the 12-18-month outlook for economic growth and inflation.

The meeting will be attended by six of the CNB's seven policymakers, meaning Governor Zdenek Tuma will have the casting vote if the board is evenly split.

Viktor Kotlan, chief economist at Ceska Sporitelna, said the crown's moves before the meeting could give the market some guidance. The crown has shed 0.7 percent from this month's highs to trade at 28.338 per euro <EURCZK=> on Friday.

"I assume the uncertain zone is 28.30-28.60 on the euro/crown. Levels below this range would be enough to scare the board away from any tightening, while levels above would encourage a hike," said Kotlan. "Overall, it is a close call for no rate change."

RATE NORMALISATION

But Jeff Gable at Barclays Capital in London and David Marek at Patria Finance in Prague saw the odds tilted in favour of a quarter point rate rise next week, reflecting a weaker crown and inflation risks stemming from accelerating domestic demand.

A slim majority of 13 analysts from the 22 predicting no change in October saw the CNB tightening again in November or December to respond to robust manufacturing activity and a revival in consumer spending.

A possible further weakening in the crown on jitters over the deteriorating budget outlook and a five-month-old political crisis, along with a likely euro zone rate increase in December, could also spark a rise in Czech credit costs, analysts said.

"The (interest rate) hiking should take place gradually, by 25 basis points each quarter," said Jiri Skop at Komercni Banka in Prague, which forecasts one more increase this year and a rise to 3.50 percent by the end of next year. "By that, the CNB should take its interest rates back toward neutral levels and partially withdraw its loose monetary policy," he added.

Nine analysts in the poll expected another rate rise only early next year. The median forecast put the key two-week repo rate <CZCBIR=ECI> at 3.0 percent in 12 months from now.

- Additional reporting by Mirka Krufova

((For TABLE detailing analysts' interest rate forecasts, double click on <CZ/ECON19>))

((Reporting by Mirka Krufova and Marek Petrus; Editing by David Stamp; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

Keywords: ECONOMY CZECH RATES