UPDATE 1-Czech c.bank's Tuma: Crown tames price pressures

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By Jan Lopatka

The firm Czech crown is helping to tame price pressures stemming from high commodity prices, but this need not be a standard feature of the Czech economy, central bank (CNB) Governor Zdenek Tuma said on Friday.

"While this (the inflation-dampening effect of a strong crown) is true, I would not like this to be understood as that this would always be the case and that this is systemic," Tuma told a conference on euro adoption.

Tuma's comments came in response to other speakers at the conference who pointed out that the crown has been a significant factor cooling down domestic price growth, and thus helping companies control costs.

The crown has rallied nearly 7 percent against the euro since hitting this year's lows in early July, benefiting from the healthy economy which has made it a safe haven for investors exiting dollar assets on concerns over a U.S. growth slowdown.

The speed of the currency's ascent has prompted some business leaders to worry about their companies' profits and urge the government and central bank to work together to set a clear timetable for adoption of the euro.

The right-of-centre government and the CNB agreed earlier this year to set no euro adoption target date after giving up on the previous aim of gaining entry to the currency bloc in 2010.

Tuma said ditching the crown for the euro after joining Europe's common currency would remove some immediate costs to businesses stemming from exchange rate fluctuations.

But fixing the nominal exchange rate would not remove the long-term real currency appreciation and lessen pressure on competitiveness, which will come through faster inflation.

The CNB board held the two-week repo rate at a five-year high of 3.25 percent for a second consecutive month in the face of the record strong crown last month, but made clear that tighter policy was needed soon to contain resurgent inflation.

Minutes from policymakers' October 25 meeting released earlier on Friday showed the CNB considered the crown's strength as a risk to its inflation forecast for 12-18 months ahead. For full text, double click on [ID:nL02290111].

The currency's strength is key to the Czech Republic's small, open economy where the sum of exports and imports is the equivalent of 130 percent of economic output.

The scaled a lifetime peak of 27.041 to the euro late last week. It traded at 26.965 per euro at midday Friday.

Keywords: CZECH CENTRALBANK/GOVERNOR

[PRAGUE/Reuters/Finance.cz]