Czech cbank's Frait sees no fast rate hikes - agency

PRAGUE, Nov 22 (Reuters) - A euro zone interest rate rise would create room for higher borrowing costs in the Czech Republic, but a rapid series of rate hikes is not on the cards, central banker Jan Frait was quoted as saying on Wednesday.

Frait, whose term as a member of the central bank's policy board ends this month, was quoted by Dow Jones Newswires as saying that risks to the central bank's inflation forecast were heading downwards and core inflationary pressures seemed tame.

But he was not convinced that currently tame inflation, and a strong Czech crown currency, could stay on hold for long, reported the agency.

"If the European rates go up as expected, my view is that it will create space for higher rates in this country," Frait told the agency in an interview.

"(But) it would not be reasonable to expect a fast series of increases in nominal interest rates," added the banker, who is widely considered to belong to one of the most dovish members of the seven-strong central bank rate-setting panel.

The key Czech policy rate has held at 2.50 percent, a record 75 basis points below the European Central Bank's equivalent, after 75 basis points worth of hikes since the CNB lifted credit costs from a record low in October 2005.

CNB policymakers will meet to review interest rates on Nov. 30 and analyse recent economic data, including October inflation which fell to a near 1-1/2-year low of 1.3 percent.

If they keep policy on hold as markets expect, the short-term interest rate gap would widen to 100 basis points in December if the ECB raises its main rate to 3.50 percent as its officials have already signalled.

Frait's comments echo statements he made in an interview with Reuters on Oct. 18 when he said moderate inflationary pressures were giving the central bank no reason to jump on the monetary brakes with a series of rate hikes [ID:nL1856741].

Frait was also quoted by Dow Jones as saying monetary policy could not be used as a tool to stem gains in the crown currency, which scaled a record high of 27.875 versus the euro on Nov. 6 and returned to within sight of that level this week.

"In my opinion, cutting interest rates to compensate for the strong foreign exchange rate is out of the question for now," the agency quoted Frait as saying. ((Reporting by Marek Petrus; Editing by Mike Peacock; 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 FRAIT