RPT-Most analysts see Czech rates on hold in Sept

(Repeats story published on Sept 15)

By Marek Petrus

PRAGUE (Reuters) - Most analysts believe Czech interest rates will stay on hold this month, but a sizeable minority expects monetary tightening to keep a lid on resurgent inflation, a Reuters poll showed on Friday.

Fifteen of 24 central bank watchers predicted the seven-member central bank (CNB) policy board would keep the key two-week repo rate at 2.25 percent <CZCBIR=ECI>, opting to wait for more evidence of mounting price pressure in the economy.

The remaining nine economists expected policymakers to worry enough about the prospect of inflation topping the midpoint of their 3 percent inflation target on a 12-18-month horizon to deliver a 25 basis point interest rate rise later this month.

And some of the 15 analysts looking for steady rates this month said there was a significant risk of bankers opting to act now rather than wait for a quarterly update of their inflation prediction next month to back up higher credit costs.

"All new information has been suggesting higher inflationary pressure," said Agata Urbanska, economist at ING in London.

"We do admit it is a close call between September and October and only narrowly favour October," she added.

The CNB last raised rates, by 25 basis points, in July to contain inflation in an economy growing at record 6 percent.

All but three economists expected at least one hike by the year-end.

RATES "EXTREMELY LOW"

August inflation surprised on the upside, growth data confirmed a household spending revival and the crown has lost 2 percent against the euro since peaking at a lifetime high early last month -- all raising expectations of credit tightening.

Many investors started betting on a September rate rise after CNB Vice-Governor Miroslav Singer told Reuters in an interview on Thursday that rising inflation pressure would force policymakers to "thoroughly" consider an imminent move.

In July, the bank predicted inflation would creep up to about 4 percent at end-2007, assuming that borrowing costs keep gradually rising. In August, inflation ran at 3.1 percent, faster than the CNB had projected.

"I can hardly find any argument why the CNB should not raise interest rates already at the September meeting," said Radomir Jac, chief analyst at PPF Asset Management in Prague.

"We still have extremely low interest rates, so when else to start adjusting them than now," he said.

At 2.25 percent, the Czech short-term policy rate has been the lowest in the European Union and a record 75 basis points below the euro zone benchmark rate, as the crown's rise earlier this year helped tame price pressures.

But the crown has weakened since hitting an all-time high of 27.955 per euro <EURCZK=> in early August to trade around 28.500 on Friday, as a parliamentary deadlock fanned investor concerns over a burgeoning fiscal gap.

Fiscal loosening projected for next year, and little prospect of a weak minority government pressing reforms to rein in welfare spending, threatens to fuel inflation and also speaks in favour of tighter credit policy, analysts said.

((For TABLE detailing analysts' interest rate forecasts through next 12 months, double click on <CZ/ECON19>))

((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 RATES