UPDATE 2-Czech central bank leaves rates flat, eyes on August

                                
 (Adds details, news conference, updates crown)
                                
 By Jan Lopatka
                                
 PRAGUE, June 26 (Reuters) - The Czech central bank left key
interest rates flat as expected on Thursday, as the
record-strong crown currency helped contain pressures stemming
from global price growth and a strong domestic economy.
                                
 But the spill-over from oil and food price rise as well as
high domestic wages have raised the chances that policymakers
will add one more tightening to the five hikes seen since May
2007, which have brought the main two-week repo rate
<CZCBIR=ECI> <CZRP=> to 3.75 percent.
                                
 The Czech ruling kept the cost of money below rates around
central Europe and the euro zone. It followed a 25 basis point
increase in Poland on Wednesday and a surprise decision by
Hungary's central bank not to raise rates earlier this week.
                                
 Most analysts polled by Reuters expected Czech rates to be
left unchanged in June but a majority saw tightening in the
third quarter as inflation ticks back up above 7 percent after a
fall from a nine-year high of 7.5 percent seen in January.
                                
 "Although interest rates were left unchanged, I think we
should get ready for some relatively hawkish comments from the
press conference this afternoon," said Radomir Jac, chief
analyst at PPF Asset Management.
                                
 "In any case, the August 7 board meeting seems to be the
crucial one, as the Czech central bank will face higher
inflation reading for June and with all likelihood also higher
interest rates in the euro zone," he said, adding that he
believed the bank could still stay put throughout this year.
                                
 The European Central Bank is widely expected to raise rates
by 25 basis points to 4.25 basis points next week, widening the
Czech rate discount to 50 basis points.
                                
 The crown currency shrugged off the decision, trading at
24.082 to the euro <EURCZK=> at 1207 GMT from 24.120 seen before
the decision, and off all-time highs of 23.92 last week.
                                
 The crown's 16 percent versus the euro over the past year,
driven by strong fundamentals and the country's safe haven
status, has been the main anti-inflationary factor in the
fast-growing economy. 
                                
 The outlook for a drop in economic activity -- the bank sees
4.7 percent expansion this year and 4.0 percent in 2009,
following 6.6 percent last year -- has also supported the
argument for keeping the cost of money way below the annual
inflation rate, which stood at 6.8 percent in May.
                                
 The central bank says the inflation spike far above its
target of 3 percent, +/- 1 percentage point, is temporary and
mainly the result of one-off hikes in the sales and excise taxes
and regulated prices.
                                
 The bank forecasts inflation will dip to its target zone by
early 2009.
                                
 The bank made no comment on the decision, but called a news
conference for 1330 GMT.
 (Reporting by Jan Lopatka; Editing by Victoria Main)