(Adds comments from news conference, updates crown)
By Jan Lopatka and Martin Dokoupil
PRAGUE, June 26 (Reuters) - The Czech central bank left key
interest rates unchanged at 3.75 percent as expected on
Thursday, as the record-strong crown currency helped contain
pressures stemming from global price growth and a strong
domestic economy.
The central bank voted by a convincing 6-1 margin to leave
rates on hold and said the crown's firming was the main factor
against an interest rate hike. The lone dissenter favoured a
quarter percentage point increase.
"We see risks on both sides. I do not want to say that risks
are precisely balanced but let's say they are balanced to
slightly pro-inflationary," Governor Zdenek Tuma told a news
conference.
"The majority opinion was that anti-inflationary risks are
remaining strong enough that the board does not have to decide
on raising the interest rates so far."
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 Romania on Thursday and Poland on Wednesday, and a
surprise decision in Hungary not to raise rates on Monday.
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.
Analysts have said that oil and food price rises as well as
high wages raised the chances that Czech policymakers will add
one more tightening in August or September to the five hikes
seen since May 2007, which have brought the main two-week repo
rate <CZCBIR=ECI> <CZRP=> to 3.75 percent.
Vojtech Benda, an analyst with ING bank in Prague, said the
expected rate hike from the European Central Bank in July could
open room for the Czech central bank to continue tightening.
"That could take some of the pressure off the Czech crown,
making it less attractive," he said, adding he expected one more
hike in the third quarter when the crown allows it.
Tuma said the currency's strengthening was in his opinion
unsustainable in the longer term, and that he could imagine a
certain correction.
A weaker crown would skew inflation risks up by making
imported resources and goods more expensive, a significant
factor in the highly open central European eocnomy.
INFLATION SPIKE, THEN DROP
Tuma said inflation may rise slightly above 7 percent over
the summer from 6.8 percent in May, nearing a nine-year high of
7.5 percent seen in January.
But he reiterated the bank's view that the spike, far above
the bank's target of 3 percent, +/- 1 percentage point, was
temporary and price growth would ease by early next year.
The inflation drop is predicted in the bank's May quarterly
inflation forecast, a key driver for policy.
The crown currency shrugged off the decision and later
slightly firmed after Tuma's comments, trading at 24.055 to the
euro <EURCZK=> at 1515 GMT from 24.120 seen before the decision,
and off all-time highs of 23.92 last week.
The crown has gained 16 percent versus the euro over the
past year, driven by strong fundamentals and the country's safe
haven status.
Tuma said the crown's strength has not yet had an impact on
growth but added that a first-quarter drop in economic growth,
to 5.4 percent year-on-year, was bigger than expected, and there
were question marks over further performance.
(Editing by Stephen Nisbet)
