UPDATE 2-Czech c.bank keeps rates steady, no early move seen

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By Jan Lopatka

The Czech central bank (CNB) left interest rates on hold at a policy meeting on Thursday, in line with analyst forecasts that subdued inflation and a strong crown would push monetary tightening several months into the future.

The bank gave no comment on its decision but has called a news conference for 1430 GMT, where it will also present a quarterly update to its inflation forecast, the key driver for monetary policy decisions.

The decision was in line with Hungary's vote on Monday to keep rates flat. Policymakers in Slovakia and Poland are also expected to hold fire next week.

"The board likely decided to wait for further macroeconomic data and to watch the development of the crown," said Ales Michl, an analyst at Raiffeisenbank in Prague.

Financial markets have scaled back expectations of a Czech credit tightening after 75 basis points worth of hikes between October 2005 and September 2006.

All 20 economists in a Reuters survey last week predicted the bank would stay on hold for now and 17 did not see any rise until at least the second quarter.

The Czech repo rate, at 2.5 percent, is the lowest in the European Union and a full percentage point below the euro zone equivalent, as the strong crown helps keep inflation at bay.

The crown has shed 2 percent from lifetime highs against both the euro and the U.S. dollar , seen in late December and early January, but remains stronger than in the bank's most recent inflation prediction drawn up in October.

"The decision is in line with expectations. We expect a tightening of policy only after a stabilising of the crown exchange rate," said David Navratil of Ceska Sporitelna.

"By the end of the year, we expect (the two week repo rate) at 3.0 percent."

The crown showed no immediate reaction to the decision, trading at 28.150 to the euro at 1310 GMT, unchanged from just ahead of the announcement and at its weakest level since mid-November.

December annual inflation of 1.7 percent undershot the CNB's target, which aims at 3 percent but includes a tolerance range of one percentage point either side of that.

The CNB's October inflation forecast saw price growth at 2.8-4.2 percent in September this year and at 3.5-4.9 percent in March 2008 as demand pressures grow in the fast expanding economy.

[PRAGUE/Reuters/Finance.cz]