* Dep. gov sticks with fcast of rate growth from H2 2011
* Says faster German recovery could reopen rate cut debate
* Only disinflationary risk to fcast materialising
* Sharp contrast to other bankers eyeing rate rises
(Adds quotes, analyst)
By Jana Mlcochova and Jan Lopatka
PRAGUE, Aug 31 (Reuters) - The Czech government's planned
budget cuts and a faster German recovery are likely to keep
inflation down, mitigating the need for any quick rise in
interest rates, central bank Vice-Governor Vladimir Tomsik said
on Tuesday.
Tomsik told Reuters in an exclusive response to emailed
questions that a faster recovery in Germany could lead to a
stronger crown exchange rate thanks to higher exports, and thus
further delay rises in rates or even reopen debate on cuts.
His remarks contrast sharply with comments by three other
bank policymakers who have spoken in recent days in favour of
earlier hikes, pointing to a split on the seven-member board.
Czech rates have been at a record low since May. The main
policy rate, the two-week repo rate <CZCBIR=ECI>, is at 0.75
percent, the ECB's benchmark rate of 1 percent.
"Since (the last board meeting), in my opinion only the risk
on the anti-inflationary side is being fulfilled, because work
on the fiscal reform has been proceeding at a rather brisk
pace," Tomsik said.
"I personally agree with the trajectory of rates implied in
the latest forecast," he said.
The government plans to reduce the public sector shortfall
to 4.6 percent of gross domestic product next year from an
expected 5.3 percent this year, through savings likely to curb
domestic demand.
The bank's August quarterly forecast is consistent with
stable rates around current levels and their gradual growth from
the second half of 2011.
The crown <EURCZK=> briefly slipped to 24.815 to the euro
after the comments from 24.807 earlier, before recovering to
trade at 24.810 per euro at 0829 GMT.
BOARD IN CLASH
The economy in Germany -- the Czech Republic's main trading
partner and a key driver of its growth -- grew by a much faster
than expected 2 percent in the second quarter, the fastest rate
since reunification almost two decades ago.
That should bolster Czech growth and foster more price
pressure, but Tomsik argued that paradoxically it could have a
disinflationary effect by producing higher exports and a
resulting stronger crown.
"Not only does a stronger and faster recovery in Germany
pose the risk of a further delay in raising rates, but a return
to debating lowering rates cannot be excluded either," Tomsik
said.
Tomsik, who has been on the board since 2006, said he saw no
signs that the present low level of benchmark interest rates
would create an unhealthy trend in demand, lending, or create a
price bubble, because market rates remain elevated.
Board members Robert Holman, Kamil Janacek -- who joined the
board last month -- and Eva Zamrazilova have all pointed to an
earlier launch of tightening than implied in the bank's
forecast. [] [] []
The interest rate swap (IRS) curve has flattened following
their comments, pricing in more chance of an earlier start to
monetary tightening, but markets do not seem fully convinced.
"We have been a bit puzzled by the sudden hawkish comments
from some CNB board members as the indicators we are looking at
mostly indicates that the present level of interest rates is
appropriate and there might even be arguments for further
monetary easing," said Lars Christensen, head of emerging
markets research at Danske Bank.
"In that sense, Mr. Tomsik's comments make perfectly good
sense."
(Writing by Jana Mlcochova; editing by Patrick Graham)
