UPDATE 1-Czechs keep rates on hold as CPI low and crown firm

(Adds background, market reaction)

By Marek Petrus

PRAGUE, Nov 30 (Reuters) - The Czech central bank (CNB) left interest rates unchanged on Thursday, meeting market expectations that it would keep the costs of money at the lowest level in the European Union after a sharp decline in inflation.

The seven-member policy board voted to hold the key two-week repo rate at 2.50 percent <CZCBIR=ECI>, a record 75 basis points below the benchmark euro zone level, following 75 basis points worth of rate hikes between October 2005 and September 2006.

A news conference is scheduled for 3:30 p.m. (1430 GMT).

All 20 CNB watchers polled by Reuters last week predicted policymakers extend the pause in monetary tightening until at least January, as a firm crown tames budding price pressures in the economy which has advanced at about 6 percent annual clip.

Consumer inflation fell below the bottom edge of the CNB's target in October, and the currency rallied to lifetime highs against both the euro and the dollar this month, benefiting from investment inflows into emerging markets.

The crown held steady at 27.965 per euro <0#EURCZK=> after the CNB rate announcement, within sight of the peak of 27.875 seen on Nov. 6. Money market rates <CZKFRA> and debt yields <0#CZBMK=> were mostly lower on the day.

October inflation declined to a near 1-1/2-year low of 1.3 percent, undershooting the bank's rolling 3 percent target, which tolerates price growth within one percentage point either side of that level.

With policy on hold this month, the gap between the key Czech rate and a higher euro zone equivalent is set to widen to 100 basis points in December when markets widely expect the European Central Bank to raise its main rate to 3.50 percent.

But economists have agreed the CNB would resume monetary tightening next year to track higher ECB rates and quash any potential inflationary pressures from robust manufacturing growth, rising employment and a revival in consumer spending.

((For FACTBOX on central European rate verdicts, double click on [ID:nL23215572]))

((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))

Keywords: CZECH RATES/