* Czech cbank votes 4-3 to keep rates flat at record low
* New forecast sees higher growth, inflation in 2010
* Bank saw no need for alternative policy tools
* Crown firms 0.8 percent, then falls back, rates up
(Updates with press conference, updates prices)
By Jana Mlcochova
PRAGUE, Nov 5 (Reuters) - The Czech central bank narrowly
voted against cutting interest rates on Thursday after a
weakening of the crown in the past weeks and new forecasts
showed higher inflation and growth next year.
The bank kept the main two week repo rate <CZCBIR=ECI>
<CZRP=>, used to curb excess liquidity, a quarter percentage
point above the European Central Bank rate at 1.25 percent.
Three dissenters on the seven-strong governing board pushed
for a quarter percentage point rate cut, showing the board
continued to be split over policy direction in an environment of
a slow economic recovery.
The bank's new quarterly macroeconomic forecasts showed
headline inflation rising to 2.4 percent at the end of 2010, in
range of the bank's target of 2 percent +/-1 percentage point,
including a one-off impact of tax hikes. []
It raised the 2010 growth forecast to 1.4 percent from 0.7
percent, but said that growth would weaken in the course of the
year due to high unemployment and weaker foreign demand.
The vote was in line with expectations in a Reuters poll but
a surprise for some in the market, which had priced in a more
than 50 percent chance for a cut.
The crown firmed as much as 0.8 percent against the euro
<EURCZK=> to a two-week high of 25.80 following the decision
before easing back to 25.87 later.
One- to 2-year interest rate swaps (IRS) and forward rate
agreements rose 10-15 basis points.
Central bank Governor Zdenek Tuma said that while some board
members argued that a rate cut was needed to bring inflation
back to target from 0.0 percent in September, others worried
that lower growth of the country's economic potential would
limit the scope for loose policy.
"Rate cut defenders... saw the economy continuing to be
under pressure, and that bringing inflation to target on the
monetary policy horizon requires cutting rates," he said.
"Against that, there was an uncertainty over what the
long-term equilibrium trajectories are. If it turned out that
for example we would reassess growth in potential output
downwards, then the trajectory in interest rates could be
different, it would be higher."
OTHER TOOLS DISCUSSED
Tuma did not say how he voted, but the bank will reveal
individual votes next Friday. Tuma was outvoted when he and
Vice-Governor Miroslav Singer supported a cut at the previous
meeting in September.
The governor said the bank discussed other possible tools to
ease policy, which the market had closely waited for after Tuma
mentioned the option last month, but that the situation did not
require using them.
Some analysts have said that the crown's 3.2 percent easing
since the last meeting until Thursday had done much of the job
and the central bank would not need to cut or employ tools such
as quantitative easing or foreign exchange intervention.
"The Czech central bank decision most likely reflects
signals that the global economy started to recover and to some
extent it might have also been impacted by the recent weakening
of the Czech crown," said Radomir Jac, chief analyst at Generali
PPF Asset Management.
The European Central Bank and the Bank of England both kept
benchmark rates flat on Thursday. Romania kept rates unchanged
on Tuesday due to political uncertainty.
Poland kept rates on hold last Wednesday showing a shift to
a neutral bias from an easing one. Hungary's central bank may
cut rates by 25 basis points to 6.75 percent later this month,
although some market watchers have said further weakness in the
forint may slow rate cutting or even halt it for some months.
For HIGHLIGHTS double click on.........[]
For FORECASTS double click on...........[]
(Additional reporting by Robert Mueller and Jason Hovet;
Editing by Ruth Pitchford and Lin Noueihed)
