* Borrowing costs maintained at record low
* One vote for rate hike, but most see risks balanced
* Fiscal tightening may allow looser policy in the future
(Adds comments, market reaction, quote, background)
By Jana Mlcochova
PRAGUE, Sept 23 (Reuters) - The Czech central bank kept
interest rates flat on Thursday as expected and stuck to its
outlook for stable policy although one board member advocated a
rate hike, the first voice for tighter policy in over two years.
Czech rates dropped to an all-time low in the economic
crisis, with the final cut to 0.75 percent in May this year, and
the bank expects loose policy to prevail until gradual hikes
form the second half of the next year.
Governor Miroslav Singer said some board members talked
about prevailing pro-inflationary risks but said the majority of
the 7-strong board saw the risks to the inflation forecast,
which is the main driver for policy, to be balanced.
"At the moment the development corresponds to what we had
expected," he said.
The "balance" of risks is a shift from the description of
"slightly anti-inflationary" the bank used after its previous
meeting on Aug 5, but Singer said none of the risks on either
side was large.
The strong crown, which has gained 7 percent against the
euro this year, is an anti-inflationary factor, he said.
The new centre-right government's fiscal cuts will have an
impact and, other things equal, could lead to looser policy in
the future than the bank would assume, but not on the horizon of
this or next year.
The bank said data from the real economy, including output,
the labour market and commodity prices, were pro-inflationary
risks.
"On the pro-inflationary risk..., unemployment is slightly
lower than we had expected," Singer said, adding this could push
inflation higher.
"But we do not overestimate that. None of the risks seems to
be significantly dramatic at the moment," he said.
RATES ON HOLD FOR SOME TIME
The crown <EURCZK=> currency showed no reaction to the
decision, trading at 24.61 to the euro, same as before the news
and close to late Wednesday's levels.
Chief Economist Pavel Sobisek of UniCredit Bank in Prague
said he did not believe the bank would raise Europe's third
lowest borrowing costs sooner than in the second quarter of
2011.
"If there was some change in the pro-inflationary direction,
it was mainly short-term factors such as food prices, which the
central bank cannot influence much by its policy," he said.
"On the other hand we have a chance for a more significant
tightening of fiscal policy, which is relevant factor for
monetary policy."
The government approved a 2011 budget draft on Wednesday
night that includes wage and spending cuts and a public sector
gap of 4.6 percent, down from 5.3 percent expected this year.
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Analysts said the fiscal retrenchment meant there was less
need for tighter monetary policy and a boost for the crown.
Annual inflation was 1.9 percent in August, close to the
bank's target of 2 percent, with a tolerance band of one
percentage point either side of the target.
Elsewhere in the region, Polish minutes showed the policy
council voted on a surprisingly large 50 basis point rate hike
in August, but the motion had failed. Hungarian central bank is
expected to keep the main rate on hold on Monday.
[]
(Editing by Toby Chopra)
