RPT-UPDATE 1-Czech c.banker Singer says would consider rate cut

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Czech central bank Vice-Governor Miroslav Singer suggested on Wednesday that interest rates could be cut to offset the strength of the crown, a view contrary to market expectations that see a rate rise as the next move.

The central banker was quoted as telling the business daily Hospodarske Noviny that he would "seriously consider" cutting interest rates if the crown stayed firm. It has rallied 6 percent to record highs versus the euro over the last year.

The central bank (CNB) raised its key rate 75 basis points between October 2005 and September 2006 to 2.5 percent, the lowest in the European Union and 1 percentage point below the euro zone equivalent.

Singer said he could ignore the crown's rise if it looked like it was going to be short-lived and followed by a weakening.

"But as there is no such certainty, I have no choice but to assume that such a strong crown will stay with us in the future.

"In this case, it is currently not about a near-term interest rate increase, and it is likely that I will seriously consider whether or not it would be appropriate to lower interest rates," Singer told the paper.

The paper quoted Singer, a member of the central bank's seven-strong policy board, as saying there were no signals suggesting a possible rate cut would threaten the economy.

At 1.7 percent in December, the annual inflation rate was well below the central bank's inflation goal, which is 3 percent with a tolerance of 1 percentage point either side.

The crown rallied to record highs versus its key reference currency, the euro, in late 2006.

But its tightening effect on the economy has so far led markets to expect the central bank to delay interest rate hikes, rather than to cut them.

The CNB has been widely expected to cut its inflation forecast but hold interest rates steady at a Jan. 25 meeting, while keeping expectations of another hike later this year alive, to track a forecast euro zone rate increase.

The crown traded at 27.700 per euro by 0708 GMT, not far off a record high of 27.410 reached in late December.

[PRAGUE/Reuters/Finance.cz]