* C.bank chief outvoted on rates
* Bank discussed currency-easing measures
* For TEXT of meeting minutes, click on []
(Adds analyst, details, interest rate reaction)
By Jan Lopatka
PRAGUE, Oct 2 (Reuters) - Czech central bank chief Zdenek
Tuma was one of two dissenters who argued for lower interest
rates when the bank's board voted to keep them on hold last
week, signalling the Czech easing cycle may not have finished.
For the first time since publication of voting records began
at the start of 2008, Tuma was on the losing side of a vote --
by 5 to 2 -- showing the normally consensus-building governor
strongly felt the need to ease policy further as the economy
faces a weak recovery.
The minutes of the board's meeting, released on Friday, also
showed that in the light of rates being already low, the board
discussed alternative ways to pursue a weaker exchange rate and
thus looser monetary policy.
The Czech economy dropped into a deep recession this year,
falling 5.5 percent year-on-year in the second quarter, and the
bank only expects a slow rebound and sees inflation risks
shifting downwards from its latest forecast made in August.
But, amid debate as to whether further rate cuts would have
any effect, the board voted to leave the cost of money unchanged
at an all-time low of 1.25 percent at the Sept. 24 meeting.
The other board member voting for a 25 basis point cut was
Vice-Governor Miroslav Singer.
"The prevailing view in the board was that the resulting
balance of risks to the fulfilment of the August forecast was
anti-inflationary, although the members differed in their
opinions about the intensity of the risk," the minutes said.
They said some board members saw inflationary risks broadly
balanced but that some expressed the opinion that it was "highly
likely the inflation target would be significantly undershot
unless monetary policy was eased."
The bank will next update its forecast in November. A shift
in inflationary risks would mean the next outlook for price
growth will be lower, implying looser rate policy may be seen as
required to meet the bank's 2 percent inflation target.
END TO EASING?
Interbank interest rates dropped as much as 8 basis points
after the minutes were released, with 2-year interest rate swaps
<CZKAM6PR2Y=> quoted at 2.45 percent, down from 2.50.
Analysts said the move looked like the market may be
starting to price in another cut.
"I still see the possibility of a rate cut ahead. There's
still pressure on the economy on the export side and also on
unemployment," said Simon Quijano-Evans, an economist at
brokerage C. A. Chevreux.
"In addition to the fact that the Czech crown is the best
performer in the region, so the tightening of the monetary
conditions is still coming from the crown side."
The Czech crown dropped slightly after the minutes to a
session low of 25.475 to the euro <EURCZK=> from 25.455 before
the release, but later firmed to 25.420.
The crown has outperformed its central European peers this
year, gaining 5.2 percent since January.
The minutes showed that in the light of rates being already
low, the board discussed potential alternative ways to pursue a
weaker currency and thus looser policy, but gave no details.
Any such measures would be a rare market intervention from
the bank, which only acts if there is a sharp deviation from
what it sees as a path justified by economic fundamentals.
"Doubts were repeatedly expressed about whether an interest
rate reduction would, in the present situation, have the desired
effect on lending, the exchange rate and thus inflation at the
monetary policy transmission horizon," the minutes said.
"In connection with the potential continued build-up of
anti-inflationary risks, and with regard to the already limited
rate-lowering options of monetary policy, The board also debated
other monetary policy instruments that could be used to affect
the exchange rate dynamics and establish easier monetary
policy."
(Reporting by Jan Lopatka and Jason Hovet; editing by Stephen
Nisbet and Toby Chopra)
