* Rates stay at record low, seen up late next year
* Market expected shift to tightening sooner
* Bank cuts 2011 growth f'cast due to budget cuts
* For new forecasts, click on []
(Adds forecasts, crown, quote, background)
By Jana Mlcochova and Robert Mueller
PRAGUE, Nov 4 (Reuters) - The Czech central bank kept
interest rates at record lows on Thursday as expected but
surprised the market by pushing back the expected start of rate
hikes toward the end of the next year.
The bank sharply cut the 2011 economic growth forecast to
1.2 percent from 1.8 percent, citing fiscal austerity measures at
home and abroad as the main reason for the slowdown from 2.3
percent seen this year, and along with it projected a lower rate
path.
The dovish outlook hit interest rate swaps which dropped as
much as 8 basis points and the crown currency gave back some of
the gains made earlier in the day.
"The (negative) fiscal impulses are... stronger than we
expected," Governor Miroslav Singer told a news conference.
The bank's governing board voted 5-1 to keep the key
two-week repo rate used to drain excess liquidity at a record
low of 0.75 percent, reflecting weak demand-led inflation
pressures, strong currency, and the fiscal cuts.
But the bank's new quarterly staff forecast surprised by
pushing back a rise in market rates, seen as proxy for official
rates, towards the end of 2011, a few months later than the
previous forecast.
The staff forecast is a guidance for the board, which
however can make rate decisions independently.
Analysts had mostly expected the bank would shift its
outlook for tightening into the first half thanks to a robust
recovery, although looser policy administered by the U.S.
Federal Reserve was an argument against tighter policy.
"Overall I think the central bank has exaggerated its
pessimism," said Pavel Sobisek, a chief economist at UniCredit
in Prague.
"Expectations for a rise in the central bank rates will
probably be pushed back after the release of the new forecast,
but in the next months they will again start approaching the
earlier-assumed middle of 2011."
The key Czech interest rate is the third lowest in Europe
and below the euro zone where the ECB left its benchmark rate
unchanged at 1 percent on Thursday.
The crown dipped to 24.47 <EURCZK=> to the euro after the
forecast from 24.36, having touched a two-year high of 24.345
earlier in the session.
The 1-year interest rate swap <CZKAM3PR1Y=> fell 8 basis
points and was quoted at 1.3059/8590 percent by 1430 GMT.
FISCAL CUTS BITE INTO GROWTH
The Czech government plans to cut the budget deficit to 4.6
percent of gross domestic product next year from 5.3 percent
this year, using mostly cuts in public wages, benefits and road
building.
The planned cuts, along with austerity abroad, pushed the
bank to the highly conservative side of forecasts, with the
Finance Ministry and private sector predicting GDP growth next
year at around 2 percent.
The Czech central bank is the only one among its emerging
European Union peers to expect a weaker expansion in 2011 than
this year.
Poland's central bank sees its growth rising to 4.4 percent
in 2011, while Hungary's growth is expected to accelerate to 2.8
percent.
(Writing by Jan Lopatka; Editing by Toby Chopra)
