(Adds comments on inflation, euro, updates crown)
By Petra Vodstrcilova
PRAGUE, March 4 (Reuters) - The Czech crown has risen to
unrealistic levels and will have an impact on monetary policy
decisions, central bank chief Zdenek Tuma said on Tuesday.
Speaking at a business conference, Tuma said a correction to
the crown's gains was possible, prompting a brief dip in the
exchange rate.
"It seems to me that the crown is out of all conceivable
levels, the firming does not have any fundamental causes, there
can be a certain correction," Tuma said.
The crown briefly slipped to 24.915 to the euro <EURCZK=>
after Tuma's comments but then probed new highs at 24.83, rising
6.7 percent so far this year and 11.9 percent from a year ago in
local currency terms. It stood at 24.895 at 1004 GMT.
Analysts share the bank's view that the crown is overvalued,
although it has been accompanied by strong growth and exports.
The central bank has said the crown was tightening monetary
conditions by making imported goods and commodities cheaper.
Tuma reiterated that message, saying the exchange rate was the
strongest anti-inflationary factor at the moment.
The bank has raised interest rates by 200 basis points since
late 2005, with the latest 25 basis point tightening on Feb. 7.
That increase brought the key two-week repo rate to 3.75
percent, narrowing the negative interest rate differential with
the euro zone to just 25 basis points, a factor that has also
helped the crown.
INFLATION TO DROP BACK
The central bank's quarterly forecast in early February saw
interest rates at or close to their peak, and predicted an
easing already this year.
But much worse than expected January inflation at a 9-year
high of 7.5 percent has changed the picture and some analysts
now expect another interest rate rise, possibly when the central
bank next meets on policy on March 26. Others see flat rates
throughout 2008.
Tuma reiterated the bank's stance that the inflation spike
was temporary.
"Inflation has shot up as a result of one-time shocks, and I
believe that within a year we will be back around the inflation
target," he said.
The bank targets inflation of 3 percent, +/- 1 percentage
point.
Tuma also said there were arguments both in favour and
against quick euro entry, and that the final decision was up to
politicians.
The Czech ruling right-wing Civic Democrats have been
against a quick euro entry, saying the economy needed more time
to converge with the richer western Europe and the country
should only adopt the single currency after 2012.
(Reporting by Petra Vodstrcilova, writing by Jan Lopatka,
editing by Ian Jones)
