RPT-POLL-Czech rate hike seen delayed to third quarter

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By Mirka Krufova and Jan Lopatka

PRAGUE (Reuters) - A drop in inflation has shifted expectations for an interest rate rise in the Czech Republic into the third quarter, a Reuters poll showed on Thursday.

All 21 analysts who took part in the survey said they expected the central bank (CNB) to leave the key two-week repo rate flat at 2.50 percent when its governing board next meets on policy on March 1.

Only three analysts forecast a move in the second quarter -- a marked shift from January when 13 out of 20 had predicted a rise by the end of June.

"With inflation subdued and below target, the CNB is in no hurry to raise rates," said Nigel Rendell, an analyst at Calyon.

"The relative strength of the crown also suggests that Czech rates can stay at a significant discount to euro rates for an extended period of time."

The central bank tightened policy by 75 basis points between October 2005 and September last year but expectations of further rises have been constantly pushed back since, mainly due to the currency strength which depresses import prices.

Thirteen analysts forecast the next move would come in the third quarter, three saw a hike in the fourth and two forecast flat rates throughout 2007.

A narrow majority, 12 economists, saw the repo rate at 3.0 percent in February next year, with six predicting it at 3.25.

The change in expectations came mainly after a surprisingly low inflation reading for January.

Year-on-year price growth dropped to 1.3 percent, significantly below the central bank's inflation target of 3 percent, plus or minus one percentage point.

The central bank itself has pushed back expectations of the next hike, saying last month that rates could stay on hold longer than previously predicted.

Two central bank board members have said in recent weeks that the next rate move could be in either direction, although none of the analysts polled predicted a cut.

Czech interest rates are already the lowest in the the EU despite fast economic growth. The main policy rate stands 100 basis points below the European Central Bank's rate and that gap will widen if the ECB tightens policy in March, as expected.

That has made the crown a funding currency for taking positions elsewhere in the region, knocking the Czech unit off all-time highs at 27.41 seen in December and early January.

A Reuters poll last week saw the interest rate discount keeping the crown on a softer footing in the coming months before it returns to its long-term upward trend.

Analysts forecast the currency at 28.1 in both one and three months, and at 27.15 a year ahead.

ANALYSTS' INDIVIDUAL FORECASTS...............[ID:nL22136013] LATEST FOREIGN EXCHANGE POLL...[ID:14403418] [ID:nL15738148]