Czech crown hemmed in range near life-time highs

PRAGUE, Nov 23 (Reuters) - The Czech crown hovered at levels just a whisker weaker from record highs against both the euro and the dollar on Thursday morning, supported by the outlook for stable and robust growth in the EU member country's economy.

The crown was confined to a narrow range in the past three sessions and flirted with the 27.900 level in morning activity. It held flat at 27.920 per euro <0#EURCZK=> by 0850 GMT, not far off a life-time high of 27.875 posted on Nov. 6.

The crown also traded within sight of all-time highs to the U.S. dollar <CZK=>, quoted at around 21.550-600.

The firm currency has led investors believe that the central bank (CNB) could pause in monetary tightening following an interest rate increase to 2.50 percent in September, and delay any additional hike until early next year.

"The exchange rate is one of the key parameters of the CNB's reaction function and, as opposed to other central European central banks, the CNB is open about it," said Radoslaw Bodys, central European economist at Merrill Lynch.

"At the current level, the euro/crown arguably still remains within the CNB's comfort zone, suggesting modest implication for interest rates, with the major possible implication being slower than otherwise rates normalization," he said in a report.

The outlook for steady policy through the year-end has supported Czech debt markets over the past few weeks, and was re-inforced on Wednesday by policymakers Robert Holman and Jan Frait, seen as the two most dovish members of the CNB's board.

Holman told Reuters in an interview late on Tuesday that the CNB was not very likely to raise interest rates at the Nov. 30 meeting, as inflation has fallen and there is no pressure for additional tightening [ID:nL22899028].

Frait was quoted as saying in an interview with Dow Jones Newswires that a euro zone interest rate rise would create room for higher borrowing costs, but no fast rate hike series is on the cards [ID:nL2238925].

CNB policymakers will meet to review interest rates on Nov. 30 and also analyse most 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 widely 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.

----------------- MARKET SNAPSHOT AT 0851 GMT -----------------

Crown/euro <EURCZK=> last deals at 27.920 (+0.04 pct) Crown/dollar <CZK=> at 21.567 bid (-0.14 pct)

5-year yield due Oct 2010 <CZ5YT=RR> 3.47 pct bid (-1 bps) 10-year yield due Jan 2016 <CZ10YT=RR> 3.74 pct bid (-1 bps)

5-yr CZK/EUR mid yield spread <DE114147=> -21 bps (vs -20) 10-yr CZK/EUR mid yield spread <DE113529=> 5 bps (vs 4)

Current levels versus prior domestic close at 1500 GMT ---------------------------------------------------------------

((Reporting by Marek Petrus; Editing by Chris Pizzey; 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))

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Keywords: MARKETS CZECH CROWN MORNING