* Czech cbank holds rates at historic low
* Analysts say crown weakness may limit cuts
* Crown <EURCZK=> little changed after decision
(Adds press conference details, context)
By Jana Mlcochova and Robert Mueller
PRAGUE, March 26 (Reuters) - The Czech central bank kept
interest rates flat at a historic low as expected on Thursday
and said a decline in economic growth and volatility in the
crown created balanced risks for future rate moves.
The decision came before centre-right Prime Minister Mirek
Topolanek stepped down following his cabinet's defeat in a no
confidence vote earlier this week.
That has sparked a political crisis and slightly weakened
the crown, the region's best performing currency.
In a unanimous vote, the bank left its main two-week repo
rate at 1.75 percent, the lowest level among the main economies
of emerging Europe and a quarter point premium to the euro zone.
Analysts had expected the decision -- 13 of 16 polled by
Reuters had forecast rates on hold -- saying that despite a
deteriorating economic picture, the crown's relative weakness
against the euro would stay the bank's hand.
The crown <EURCZK=> was unchanged after the decision but
later firmed on what some dealers said could be profit-taking on
euro/Czech positions.
Central bank Governor Zdenek Tuma said the drop in Czech
economic growth because of the external environment had been
faster than forecast. He refused to make a prediction on the
direction of rates but said there were a lot of uncertainties.
"The signals are either mixed or, if it is the exchange
rate, for example, it is very volatile. At this point risks as
for further developments appear relatively balanced," he said.
CROWN WEAKNESS
The crown has outperformed its regional peers by clawing
back around 8 percent from a three-year low in February to trade
almost flat this week.
It has lost 16.5 percent from a record high of 22.925 per
euro hit last summer, falling less than the Polish zloty, the
Hungarian forint and the Romanian leu. All the currencies were
hit as sinking demand from the recession-stricken euro zone
hammered manufacturing in the export-heavy region and prompted
investors to dump assets.
The crown slid by 2 percent after Topolanek's fall this week
but has since recovered, outperforming the forint which has lost
0.7 percent since Tuesday's no-confidence vote.
Some analysts said that deteriorating growth still
underpinned the regional picture and would continue to weigh on
the crown and its neighbours for some time to come.
That meant the central bank would still feel pressure not to
cut rates much or keep them flat to avoid a currency weakening
that would raise inflation pressures.
"Our conviction that crown will remain under pressure to
weaken ... leads us to conclude that the space for further rate
cuts is limited," Ceska Sporitelna said in a research note.
On Wednesday, Poland's central bank cut rates to a historic
low of 3.75 percent as the country faces the prospect of
undershooting the Finance Ministry's 2009 growth target of
1.5-2.0 percent.
And on Monday, Hungary left its key rate unchanged to keep
financial stability after the forint hit record lows against the
euro over the past month and its government fell as well.
Tuma said this week the economy should shrink by as much as
2 percent this year if the recession in Western Europe worsens.
He added that the crown was near the bank's forecast levels.
"Let's say (the crown exchange rate) is close to levels that
we are counting on in our forecast. I do not want to speculate
about what fundamental levels are," he said.
(Reporting by Jana Mlcochova and Robert Mueller; Editing by
Ruth Pitchford)
