UPDATE 1-Czech Jan CPI rise lags fcasts, rates seen on hold

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Czech consumer inflation rose much less than forecast in January despite a raft of regulated price hikes, according to data on Wednesday which helped cement expectations of flat credit costs in the coming months.

The consumer price index (CPI), the broad gauge of inflation targeted by the central bank (CNB), rose 1.0 percent month-on-month , lagging the 1.6 percent median forecast in a Reuters poll of analysts.

This caused annual price growth to slow unexpectedly to 1.3 percent from 1.7 percent in December , the statistics office reported.

The result wrongfooted the market's consensus forecast of a quickening to 1.9 percent.

The headline figure slid further below the CNB's tolerance range of one percentage point either side of a 3 percent target, giving markets little reason to expect a rush into further policy tightening in an economy growing at 5-6 percent a year.

The crown lost quarter of a percent on the news, to 28.250 per euro by 0820 GMT.

Government debt yields shed about 5 basis points across the board and short-term money market rates also fell, as investors raised bets that interest rates could stay on hold for longer than expected.

Before the data, the prevailing market's view was that interest rates will be stable until at least the summer before a possible quarter point rate hike following 75 basis points worth of tightening between October 2005 and September 2006.

"Inflation for January brings an argument in favour of delaying a rise in interest rates into the third quarter," said Michal Brozka, analyst at Raiffeisenbank in Prague.

Last month, the CNB held the key rate at 2.50 percent, the lowest level in the European Union, but minutes from the meeting surprisingly showed some board members did not even rule out a future rate cut, citing numerous inflation risks on both sides.

Central bank Vice-Governor Miroslav Singer said on Friday monetary policy was likely to hold steady over a longer period of time, but it is impossible to rule out transitory hikes or cuts in interest rates.

Increases in government-regulated prices made up 0.6 percentage point of the headline January number, the statistics office said, mainly due to past hikes in tobacco tax and higher electricity costs, water rates, rents, and television fees.

Regulated natural gas prices fell, as did fuel prices.

The January data was first published following an update to the basket of goods and services used to calculate the CPI, which rebased the index to 2005 and raised the weight of housing as well as transport costs at the expense of foodstuffs.

((For INSTANT VIEW of inflation data, double click on the code in brackets: [ID:nL14928952]))

[PRAGUE/Reuters/Finance.cz]