INTERVIEW-Czech c.bank chief mulls cutting inflation target

By Marek Petrus

PRAGUE, Dec 11 (Reuters) - The Czech central bank (CNB) will consider lowering its inflation target to 2.5 or 2.0 percent from 3.0 percent regardless of what date Czech politicians choose for euro adoption, Governor Zdenek Tuma told Reuters.

"It cannot be ruled out that without regard to whether the euro will be in 2010, 2015 or at another time, the inflation target may go lower anyway," he said in an interview conducted late on Friday for publication on Monday.

The governor said the former Communist country was successfully closing the gap on richer neighbours in western Europe in both price and output levels, and the economy might be mature enough to do without an inflation premium.

He said the revision could encompass a possible switch to targeting the EU's Harmonised Index of Consumer Prices (HICP), which has consistently lagged the national measure of consumer price growth by some 0.2 percentage points.

Tuma's bank has a track record of undershooting its target for the annual consumer price index (CPI), and some CNB watchers say a lower target might bring the benefit of anchoring inflation expectations at a lower level.

But markets have thought the CNB would seek to cut its target only when it starts gearing policies towards the successful meeting of criteria governing entry to the euro zone.

Policymakers worry the current inflation goal, which has a tolerance range of one percentage point either side of 3 percent, might permit price growth to breach the test for euro adoption. The threshold was 2.8 percent based on October data.

Tuma made clear the idea of a lower target need not be only linked to preparations for euro adoption.

"Rules are not unchangeable ... It is legitimate to consider from time to time whether our setting of the inflation target is still valid, which is dependent on the assumptions of equilibrium indicators in this economy," he said.

"I am not saying that if it is not tied to the euro, that it should lead to a change in the target, but I would see it as legitimate to consider it," he added.

The governor said he would like to see the bank keep a symmetrical inflation target but would not say whether he personally would prefer a cut to as low as 2 percent rather than 2.5 percent, as some fellow CNB policymakers have suggested.

The change to a 2 percent target would bring the CNB's policy framework into line of Sweden's Riskbank or the Bank of England, which served as the Czech bank's role model to introduce a formal inflation targeting regime in 1997.

The CNB agreed with the outgoing right-wing government to scrap the original 2010 target date for euro adoption.

Tuma said the CNB would aim for a new joint strategy by the middle of next year, provided that a new government is formed to lead the country out of a policymaking limbo, which has followed an inconclusive election in June. ((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/TARGET