(Adds central bank comments, forecasts, updates crown)
By Martin Dokoupil and Jan Lopatka
PRAGUE, May 7 (Reuters) - The Czech central bank (CNB) left
interest rates unchanged on Wednesday, in line with market
thinking that the monetary tightening cycle has peaked with
inflation retreating from nine-year highs.
The main two-week repo rate <CZRP=> <CZCBIR=ECI> stayed at a
six-year peak of 3.75 percent, following five increases over the
past year.
Among the seven policy makers, one voted for a 25 basis
point tightening. A minority of analysts expect one more rise
this summer, according to a Reuters poll [].
Central banks in major economies as well as in central
Europe have been grappling with rising commodity and food prices
amid a credit crunch which has slashed growth forecasts.
The Czech central bank's staff slightly cut inflation and
interest rate forecasts, indicating that interest rates may drop
later this year, but the bank at the same time warned that
inflation risks vis-a-vis the new forecast were rather on the
upside, and Governor Zdenek Tuma said the board was cautious.
"There was quite a big debate on whether interest rates can
fall already this year. A number of board members have expressed
scepticism whether this decrease materialises," he said.
"Uncertainties are still remaining, the fog remains despite
new data since the previous projection, this means uncertainties
remain big," he told a news conference.
The bank's forecast saw the 3-month interbank offered rate
at 2.8 percent by the first quarter of the next year,
significantly below the 4.13 percent on Wednesday.
Inflation shot up to 7.5 percent in January, partly due to
higher regulated prices and tax changes. Underlying inflation
pressures have also risen due to a tightening labour pool and
the impact of spikes in energy and food prices.
The bank sees inflation at 2.9 percent in the first quarter
of 2009, in line with its 3 percent target [].
The crown currency, which has gained 10.6 percent against
the euro in local currency terms over phe past year, has been a
major factor keeping the inflationary pressure in check.
The U.S.-led credit crunch has had only a muted impact on
the Czech economy, but the slowdown in Europe may hit
growth to some extent along with slower domestic demand.
The crown shrugged off the rate decision and rose to 25.02
to the euro <EURCZK=> from 25.205 on Tuesday in line with the
Slovak currency boosted by an invitation to the euro zone, but
fell to 25.105 at 1508 GMT after the central bank forecasts.
ANALYSTS SEES RATES FLAT, SOME RISKS OF HIKE
Data in past weeks have shown weakening external demand and
a worse-than-expected foreign trade performance.
"Our expectation of slower private consumption growth in
2008, together with continued expectations of an economic
slowdown in industrial countries, support our view of an
unchanged CNB policy rate in 2008," said Jaromir Sindel, senior
economist at Citibank in Prague.
While the mainstream view remained for flat rates until the
end of the year, a weakening of the
