UPDATE 1-Czech cbanker sees risk of crown correction - paper

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New Czech central bank (CNB) board member Vladimir Tomsik warned in an interview published on Monday that a widening external deficit might weaken the crown.

Tomsik, who joined the seven-member CNB policy board last month, told the weekly Euro the crown's rise late last year was out of line with trends on the country's balance of payments.

Adding to warnings from other CNB policy makers, Tomsik said that while the crown's current tendency to firm feeds expectations of further appreciation, it increases the risk of a downward correction.

The crown rallied 6 percent versus the euro over the last year, more than what analysts and central bankers had expected, and scaled an all-time high of 27.410 per euro in late December.

It has since shed nearly 1.5 percent to trade around 27.800 .

"The exchange rate development of the crown from late last year does not have fundamental support in the development of the balance of payments," Tomsik said in his first public remarks on the currency since his December appointment.

"Economic agents should pay more attention to the development of the balance of payments, particularly the rising current account deficit and a high influx of banking capital," he was quoted as saying.

CNB Governor Zdenek Tuma had repeatedly said he expected a reversal in the crown's rise, especially given a record interest rate discount versus the euro zone, a deepening current account deficit and lingering political uncertainty in the country.

The current account deficit is expected to have doubled to more than 4 percent of gross domestic product (GDP) last year, reflecting a rising share of profits repatriated or reinvested by foreign investors active in the European Union member state.

The firm currency helps keep a lid on price pressures in the economy and is widely expected to lead the CNB to leave interest rates unchanged at its Jan. 25 policy meeting, and possibly keep them on hold for a few more months.

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

[PRAGUE/Reuters/Finance.cz]