(Adds central bank comments)
By Jason Hovet
PRAGUE, July 8 (Reuters) - Czech consumer prices grew at
only half the predicted pace in June, lowering the chances of an
interest rate hike next month, and the central bank said on
Tuesday the record-strong crown should temper price growth.
Consumer prices <CZCPIY=ECI> grew 0.2 percent
month-on-month in June, the Czech Statistical Bureau said, while
the market had expected a 0.4 percent rise, according to a
Reuters poll <CZ/ECON04> <CZ/ECON15>.
The rise put the year-on-year figure at 6.7 percent, down
from 6.8 percent in May, and the lowest reading since December
last year.
Inflation peaked at a nine-year high of 7.5 percent in
January and February, and the central bank said in a statement
after the CPI data release that price growth would likely rise
above 7 percent in the summer and autumn.
"The trend of falling inflation will be renewed at the end
of the year, which should fall back to low levels close to the
CNB's targets in 2009," the bank said.
"This will be also helped by current significant firming of
the crown exchange rate, which is beginning to act in a strongly
anti-inflationary direction," it said.
The bank's inflation target is set at 3 percent plus/minus
one percentage point. Analysts have expected a pickup in Czech
consumer inflation due to growing tobacco and heating prices.
The crown has jumped 18 percent against the euro in the past
year, which was a major factor in the central bank's decision to
leave borrowing rates flat since February, even as regional
neighbours tighten their policy to combat higher prices.
The crown strength has helped limit price pressures in the
Czech economy, but is expected to dent growth in coming quarters
with 2008 gross domestic product growth seen at 4.7 percent by
the central bank, after 6.6 percent last year.
Central bank Vice-Governor Miroslav Singer said on Tuesday
the strong crown may lead to a sharp drop in demand and even
slash inflation below the bank's new target of 2 percent, which
will be in place from 2010 [].
His comments ran counter to those of fellow Vice-Governor,
Mojmir Hampl, who said in an earlier interview that the crown's
strength may not be enough to bring inflation back to target,
advocating a rate hike.
"We don't think the central bank will hike interest rates
soon because the strong crown poses too much risk for the Czech
economy," said Jiri Skop, an analyst at Komercni Banka.
"If the crown corrected back toward 25.000 to the euro, the
bank would have to raise rates."
The unit eased as far as 23.673 to the euro <EURCZK=> on
Tuesday. It stood at 23.585 as of 1130 GMT, off record highs of
23.455 late on Monday.
The strong crown should keep a lid on inflation by cutting
import prices, although some economists said the link may be
weaker than they had thought.
The central bank has kept the main two-week repo rate flat
at 3.75 percent since the last in a series of hikes in February,
below the European Central Bank's which rose to 4.25 percent
from 4.0 percent last week.
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(Editing by Ruth Pitchford)
