By Jana Mlcochova and Mirka Krufova
PRAGUE, June 20 (Reuters) - The strong crown currency will
allow Czech central bankers to keep interest rates on hold next
week but rising inflationary pressures have boosted the chances
of a hike in August, a Reuters poll showed on Friday.
Fourteen of the 16 central bank watchers surveyed saw no
change in the main two-week repo rate <CZPR=> <CZCBIR=ECI> at
the meeting on June 26, leaving borrowing costs flat following
four hikes between June 2007 and February this year which
brought the rate to 3.75 percent.
The other two saw the seven-member policy board approving a
quarter-percentage point rise to clamp down on inflation
expectations in the fast growing central European economy, where
workforce shortages have bolstered employees' pay demands.
Eight of the 14 who expect no rate change in June expect the
bank to raise the cost of borrowing in the third quarter to keep
inflation expectations under control in the face of the global
rise in fuel and commodity prices.
Central banks in fellow central and eastern European
countries, Hungary, Poland and Romania, are expected to tighten
policy next week.
The crown's rally to a lifetime high of 23.920 to the euro
<EUROCZK=> is the sole big reason dampening policymakers'
appetite for hiking rates further, as the currency strength
tames import price inflation and eats into firms export sales.
"A deadlock of the monetary policy in the Czech Republic is
deepening as the currency quickly rose to new all-time highs,
while disinflation has not fulfilled the hopes of the CNB," said
David Marek, chief economist at Patria Finance.
"My guess is that the bias shifted towards higher interest
rates as inflation in consumer prices and wages highlighted the
risk of rising inflationary expectations. Thus, more CNB board
members can swing from doves to hawks and voting results can be
tight." Marek bet on no change in June.
Analysts' forecasts for Czech rates differ from those of
market players, who have priced in nearly 75 basis points worth
of hikes according to 3X6 forward rate agreements <CZK3X6F=>
<CZKFRA>.
In an interview with Reuters published on June 17, CNB board
member Vladimir Tomsik said inflation risks had risen over the
past few weeks but the firm crown currency would slow the
economy and provided a strong argument for keeping rates flat
[].
Soaring food prices kept the annual inflation rate flat
month-on-month in May at 6.8 percent, well above the 4 percent
upper range of the CNB's comfort zone.
"A further substantial increase in oil prices, especially if
combined with the weaker Czech crown, would tip the scales
towards tighter policy when the CNB board meets on August 7,"
said Radomir Jac, chief analyst at Generali PPF Asset
Management.
Analyst who expect a hike in June said the board would
probably be unwilling to wait until the next scheduled rate
meeting to prevent the high costs from spilling over to
inflation expectations.
"With Czech inflation set to breach 7 percent once again in
the coming months and continued pressure from both offshore
(globally elevated food and oil prices) and domestic (extremely
tight labour market) sources the CNB needs to act to contain
inflation expectations," said 4Cast analyst Lauren Van Biljon.
TABLE with analysts' rate forecasts....[]
<CZ/ECON19>
INTERVIEW..............................[]
