RPT-Czech rates seen flat until next year as crown firm

(Repeats story published on Nov 24)

By Mirka Krufova and Marek Petrus

PRAGUE (Reuters) - The Czech central bank (CNB) is all but certain to pause in monetary tightening until at least January, as a firm crown tames budding price pressures in the booming economy, a Reuters poll showed on Friday.

All 20 CNB watchers in the survey predicted that monetary policymakers would hold the key repo rate at 2.50 percent when they gather on Nov. 30, after 75 basis points worth of hikes from a record low in October 2005.

Economists, as well as forward money market rates <CZKFRA>, anticipate the CNB will hold fire this month after inflation fell below the bottom edge of its target and the currency rallied to lifetime highs against both the euro and the dollar.

"The recent strengthening of the currency and the good October inflation data increases the risk that the CNB will delay interest rate hikes," Goldman Sachs said in a report.

A firming currency tends to keep a lid on import prices in the small and very open Czech economy, helping offset pressure on prices from about 6 percent annual economic growth which has been increasingly propelled by household demand.

Fourteen of the analysts forecast another quarter percentage point rate rise early next year, after a quarterly update to the 12-18 month outlook for economic growth and inflation, which is next due in January.

Four economists predicted a quarter point rate increase in the second quarter of 2007, and two predicted a hike in the first half without specifying a quarter.

The median forecast put the key two-week repo rate <CZCBIR=ECI> at 3.0 percent in 12 months from now, unchanged from a similar poll last month.

EYES ON ECB

The crown has gained about one percent to 28.045 per euro <EURCZK=> and some 4 percent to 21.420 per dollar <CZK=> since the CNB policy board voted 5-1 to hold interest rates steady on Oct. 26, with the sole dissenter calling for a rate increase.

October inflation declined to a near 1-1/2-year low of 1.3 percent, undershooting the CNB's forecast and falling through the bottom of its target, which is to keep price growth within one percentage point either side of 3 percent.

If policymakers keep 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 the ECB is widely expected to raise its main rate to 3.50 percent.

CNB board member Robert Holman told Reuters this week the economy could live with such a rate gap if investors keep expecting the crown to remain firm [ID:nL22887513].

But economists agreed the CNB would resume monetary tightening next year to track higher ECB rates and respond to robust manufacturing growth and a revival in consumer spending.

"There are several things that should keep the CNB on alert against inflationary risk," said Radomir Jac, chief economist at PPF Asset Management in Prague.

"While our inflation outlook might speak only for a slow move in loosening policy in the Czech economy, the ECB policy outlook should push the CNB to increase its rates as early as January," he added.

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

((Editing by Ruth Pitchford; 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 CBANK/