* Monthly price growth 0.5 pct point below fcast
* Crown, bond yields drop
* Rate hike bets unwound
* TABLE [], INSTANT VIEW []
(Adds details, links, updates market reaction)
PRAGUE, Feb 9 (Reuters) - Czech consumer prices rose much
more slowly than expected in January, dampening expectations for
a quick rise in interest rates which had been triggered by a
tight vote on the central bank's board last week.
Consumer prices rose by 0.7 percent in January from
December, below market forecasts for a 1.2 percent rise, sending
the crown currency to one-week lows and depressing bond yields.
The annual inflation rate dropped to 1.7 percent, versus 2.3
percent expected by the market and below the central bank's 2
percent inflation target, data showed on Wednesday.
The statistics office said the monthly development was
affected by a smaller than expected rise in regulated rents. The
rise in food prices as well as prices of alcohol, tobacco, fuels
and holiday packages was also less significant.
The annual slowdown was due to a high comparative base
versus the last year when prices grew markedly due to hikes in
VAT and consumer tax, the office added.
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*For graphic on inflation click http://r.reuters.com/cyr77r
*For a story on market pricing of rate hikes: []
*Graphic on market pricing click http://r.reuters.com/naw77r
*For more stories on policymakers, inflation []
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The central bank kept interest rates on hold last week in a
tight 4-3 vote, with the three dissenters calling for a 25 basis
point hike, and Governor Miroslav Singer said the board saw
rising upside risks to the bank's new forecast.
The tight vote along with Singer's remarks raised bets on a
hike much sooner than towards the end of the year as seen in the
bank's latest forecast.
RATE HIKE EXPECTATIONS DELAYED
Analysts said the surprising CPI data weakened the hawk camp
on the board.
"The number certainly does not show any acute need to
increase interest rates," said Pavel Sobisek, chief economist at
UniCredit in Prague.
"The scenario of increases in March is therefore likely to
be deferred."
Radomir Jac, chief analyst at Generali PPF Asset Management,
said the data meant the bank can keep borrowing costs at record
lows for months ahead.
The crown weakened as much as 0.7 percent on the day
following the data to 24.175 per euro as dealers withdrew bets
on an early hike following the CPI data. It recovered some of
its losses to trade at 14.174 BY 0953 GMT.
The 3x6 forward rate agreements <CZK3X6F=> dipped 7 basis
point to 1.42 percent and two-year interest rate swaps
<CZKAM6PR2Y=> were down 2 basis points after the data. Yields on
2 year bond <CZK3YT=RR> dropped 9 points by 0937 GMT.
Markets are also keenly awaiting the first comments by the
bank's new board member Lubomir Lizal, appointed to the
finely-split board on Tuesday for a six-year term. He replaced
Robert Holman who had mostly preferred stable policy in the
past. Holman's vote from last week will be revealed on Friday.
(Reporting by Jana Mlcochova; Editing by Toby Chopra)
