RPT-POLL-Most see Czech rates flat in Aug, but verdict close

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By Mirka Krufova and Marek Petrus

PRAGUE (Reuters) - The Czech central bank (CNB) is a touch more likely to leave interest rates flat than to hike this month after the crown rallied and the global credit markets went into a tailspin, a Reuters poll showed on Thursday.

Nine of the 16 CNB watchers surveyed on Thursday and Friday said rate-setters would hold the main two-week policy repo rate at 3 percent at the Aug. 30 meeting, after this year's two hikes by 25 basis points each in May and July.

However, the poll suggested the decision was too close to call, as the remaining seven economists forecast another quarter-point rate rise to quell price pressures stemming from economic growth which has topped 6 percent in past two years.

The survey highlighted analysts' uncertainty over the near-term outlook for policy was highest in nearly a year.

Last time analysts were similarly split was in September last year, when most of the survey participants looked for no change only to see the CNB hike by 25 basis points [CNB/INT].

A 180-degree turn in global economists' assessment of risks to the world's economy after a credit and liquidity squeeze in major markets coupled with weaker domestic data to sap previous investors' conviction that another Czech rate hike was imminent.

"We think the crown's firming, the current turbulence in financial markets, uncertainty about the outlook for euro zone and U.S. interest rates, and lower inflation will delay a rate hike to September," said David Navratil at Ceska Sporitelna.

Financial markets have fully priced in a 25 basis point rate increase at the subsequent meeting in September but traders appeared reluctant to bet heavily on an August hike.

"50-50"

The crown has rallied 1.3 percent versus the euro since the start of this month, as fears of a global credit crunch have led investors to dump risky assets and buy back crowns which they had previously sold to fund risky carry trade positions.

The crown traded at 27.700 per euro on Friday afternoon, firmer from levels around 28.00-28.20 on which the central bank's staff has based its inflation projections.

Policymakers have signalled tighter policy is needed to counter a projected rise in inflation above the 4 percent upper margin of their comfort zone next year, stemming from 6 percent economic growth, tax hikes and regulated price growth.

Annual inflation slowed to 2.3 percent in July from 2.5 percent in June, undershooting both the market's and the CNB's forecasts. The central bank aims to keep price growth within the band of 1 percentage point either side of a 3 percent target.

However, analysts said comments from policymakers including Governor Zdenek Tuma [ID:nL21823970] left the door wide open for the seven CNB policymakers to consider a second quarter-point rate hike in as many months.

Board member Vladimir Tomsik reminded markets of the CNB's hawkish bias on Friday, saying in a TV interview that the inflation outlook warranted further interest rate rises and the global credit market turmoil had little impact [ID:nL24564257].

"The crown's average level to the euro so far this quarter is not significantly firmer versus the CNB forecast and adjusted inflation fell only temporarily due to the (technical factor) of a revised CPI basket," said Jiri Skop at Komercni Banka.

"The likelihood that rates will rise this month has fallen of course, but we still see 50-50 percent chance of the CNB surprising the market with a 25 basis point rate increase."

TABLE with analysts' rate forecasts.............[ID:nL24514092]

FACTBOX on profiles of CNB policymakers.........[ID:nL28883806]

Keywords: CZECH RATES/