* Board voted 5-1 for flat rates
* Risks on upside due to planned sales tax hike
* Risks to underlying inflation balanced
* Crown a touch weaker
(Adds voting, inflation risks, updates crown)
By Jana Mlcochova and Robert Mueller
PRAGUE, March 24 (Reuters) - The Czech central bank left
interest rates unchanged on Thursday, saying risks to underlying
inflation are balanced although a planned tax hike and global
factors could drive up headline price indexes.
The bank said its board voted 5-1 to keep the key two-week
repo rate <CZRP=> <CZCBIR=ECI>, used to drain excess liquidity,
at a record low 0.75 percent. The decision was widely expected.
The bank has had to weigh a swift export-driven recovery and
rising commodity prices and weak domestic demand, suppressed by
government fiscal austerity measures.
"There are practically no signals of demand-pull inflation,"
Governor Miroslav Singer told a news conference.
The market prices in a rate rise around mid-2011 but the
bank's forecast sees rates rising from the end of this year.
Regional peers, the Polish and Hungarian central banks, have
already reversed their easing cycles in past months. <HUINT=ECI>
<PLINTR=ECI>
"Nobody expected from this meeting that it would bring some
significant shift," said Vojtech Benda, a senior analyst at ING
Bank.
"The data coming over past weeks were broadly balanced...
The opinion of the banking board can change when they do the
next forecast in May but for now they have no reason to rush as
inflationary risks are not imminent, rather they are distant."
Thursday's decision, and the large majority voting against
policy tightening, weakened the crown currency to 24.500 to the
euro <EURCZK=> from 24.425 earlier on Thursday.
The vote was much clearer than the 4-3 result in favour of
flat rates last month. One hawkish board member, Kamil Janacek,
missed the Thursday meeting and another one, Robert Holman, was
replaced on the board by newcomer Lubomir Lizal.
The dissenting member called for a 25 basis point hike, the
bank said.
Singer said the board did not "agonise" over the decision
but said that the voting balance in itself should not be taken
overly seriously.
"Hockey fans know that even a closely balanced game can end
5-1. From that point of view I would not put that much stress on
(the outcome of the vote)," he said.
The bank said the risks to its headline inflation forecast,
seeing price growth close to the two percent target in the next
12-18 months, were on the upside, mainly due to a planned hike
in the lower of the two basic sales tax rates to 14 percent from
10 percent.
The bank targets headline inflation of 2 percent but tries
to look beyond the primary impact of shocks such as changes in
indirect taxes. Year-on-year price growth stood at 1.8 percent
in February.
Upside risks to the quarterly forecast updated last month
include higher commodity prices and the outlook for rate rises
elsewhere, the bank said. Downside risks are weaker price
pressures from the domestic economy and a slightly stronger
crown exchange rate.
The risks for monetary-policy relevant inflation were
balanced, Singer said.
Nineteen out of 20 analysts in a Reuters poll had expected
no change in March and one expected a quarter point hike.
Twelve said rates would rise by June, earlier than
projections in the central bank's staff forecast implying a rate
increase at the end of the year.
The European Central Bank (ECB) has signalled it could raise
the bloc's benchmark rate in April from the current record low
of 1 percent and some economists said this could put pressure on
Czechs who will want to avoid a widening interest rate
differential.
(Reporting by Jana Mlcochova; Editing by Ruth Pitchford)
