(Repeats story published on Nov 17)
By Sven Egenter and Natsuko Waki
CAPE TOWN, South Africa (Reuters) - The recent pace of appreciation of the Czech crown is unsustainable, the country's central bank chief, Zdenek Tuma, said on Saturday.
The crown has rallied 7 percent against the euro <EURCZK=> since hitting this year's lows in early July and is up 20 percent over a year ago versus the broadly weak dollar <CZK=>.
"I can hardly imagine this pace of appreciation can continue. I consider it unlikely," Tuma told reporters ahead of a central bankers' gathering on the global economy and markets in Cape Town.
"Obviously the pace of appreciation is clearly not sustainable."
Tuma said if the appreciation continued, the central bank might have to take a more careful approach in its monetary policy.
"Our forecast signals a rise in interest rates in the coming months, but at this moment the pace of appreciation can easily lead to a more careful approach. It is very difficult to say at this moment," Tuma said.
The central bank held its key repo rate at a five-year high of 3.25 percent for a second consecutive month in October in the face of a record strong crown, but made clear that tighter policy was needed soon to contain resurgent inflation.
Tuma said that much of the current inflation was due to temporary factors like higher food and oil prices.
"The expectation is that we can reach a level of around 5 percent (year-on-year)," Tuma said.
"We have emphasised that this is a temporary increase. It should go back on a 12-month horizon to our target level around 3 percent."
GLOBAL TURMOIL
The impact on the world economy from the fallout in U.S. subprime mortgages and the ensuing turmoil in global markets is expected to top the agenda for Group of 10 major and emerging markets central bankers gathering in Cape Town for a two-day meeting which starts on Sunday.
Tuma said it was still hard to assess fully the effect of the global turmoil in general and on the Czech economy in particular.
"This is the dilemma for central bankers around the globe," he said. "It is not clear at this moment how big a spill-over from the housing market into the U.S. economy will be."
But Tuma said the significance of the United States for the global economy was smaller than in the past and that emerging markets had held up well so far.
"Until now emerging economies perform extremely well and exhibit fantastic stability," Tuma said. "I would bet on a smooth development and a soft landing for the global economy."
Concerns that the credit market turmoil may hit the U.S. economy have raised expectations that the Federal Reserve will cut interest rates again in December -- a factor which has pushed the dollar to record lows against a basket of major currencies earlier this month.
When asked about the dangers of the recent dollar weakness for the world economy, Tuma said the currency development had benefits and costs.
"The weakening of the U.S. dollar should help rebalance the U.S. current account deficit on the one hand. On the other hand -- by definition -- it brings troubles to European exporters," Tuma said. (Reporting by Sven Egenter and Natsuko Waki; Editing by Chris Johnson) ((via London newsroom, +44 207 542 4441))
Keywords: CZECH CURRENCY/
