HIGHLIGHTS-Reuters interview with Czech c.bank governor

PRAGUE, Dec 11 (Reuters) - The following are selected comments by Czech central bank (CNB) Governor Zdenek Tuma in an interview with Reuters.

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ON LATEST DATA SHOWING NOVEMBER CPI REACHED 1.5 PERCENT AND Q3 GDP GROWTH 5.8 PERCENT:

"GDP growth came in not only exactly in line (with the CNB's forecast) but what I consider more significant is that our prediction, our perception of the Czech economy in the longer horizon, is being confirmed.

"The latest (CPI) number is not a surprise given the previous development. We had expected that (inflation) will bottom out, and this is being confirmed. But a question remains how quickly it will return to the trajectory we have envisaged."

ON FIRMING IN THE CROWN CURRENCY IN OVER THE PAST FEW WEEKS:

"Most of the time I do not take a stand on the exchange rate unless it goes totally crazy, which it indeed now does not seem to me to be very far from it. But I have no explanation why it has firmed so much over the past few weeks and I can imagine a certain correction."

ON PROJECTED FISCAL LOOSENING IN 2007:

"Next year should be marked by a certain expansion, but I would not say it would have a fatal impact on inflation. Despite the (projected) worsening, it would constitute a slight fiscal expansion by several tens of a percentage point, measured in terms of how much it boosts aggregate demand.

"Yes, it has some impact but the impulse is not as strong as to make us say that fiscal (policy) is expansive and we need to raise interest rates because of that."

ON HOW STRONG CROWN AND RECENT DATA MAY CHANGE CPI FORECAST IN ITS QUARTERLY UPDATE IN JANUARY:

"I can imagine that the (inflation and interest rate) trajectories will move slightly lower, but this does not rewrite the view of the economy in any significant way.

"I do not believe that anything should alter our view that inflation will head higher. We will also keep focusing on preventing changes in regulated prices and indirect taxes from spilling over into inflation expectations in any substantial way, and therefore also the rising trajectory of interest rates will remain intact.

"What may change is the steepness of the rate trajectory or possibly the timing (of rate hikes) ... The entry to the higher rate trajectory may be similarly timed, but its steepness may be lower, or (the revision) may assume that we tighten at some point later, or that we only tighten at a slower pace.

"So far the trajectory lies rather slightly above the implied trajectory which can be derived from the market. It cannot be ruled out that it will be brought closer to (market)."

"Although it is far from granted, to me -- intuitively -- it does not seem inconsistent to expect that there could be a rate hike in the first quarter."

ON RATE GAP VERSUS EURO ZONE AND POTENTIAL NORMALISATION OF INTEREST RATES WITH THEIR HISTORICAL LEVELS OVER LONGER-TERM:

"The 100 basis points is interesting ... Neither I nor anybody else had expected that to happen a few years ago.

"I no longer have any mental barrier ... I will react the way that I consider to be the right and adequate one to the given development. It is wrong to have this or that number as a psychological (barrier).

"In the long-term, I can hardly imagine that real interest rates will be negative, but then again, there is the exchange rate. This is totally different environment than a relatively closed economy like the U.S. or the euro zone, where the sensitivity to the exchange rate is lower.

"Here the exchange rate may keep pushing us away from (normalizing rates with their historical levels) and specifying the time horizon (for eventual rate normalization) is difficult." ((Reporting by Marek Petrus; Editing by Gerrard Raven; 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: CZECH GOVERNOR/