* Central bank keeps rates at all-time low
* Lowers forecast for market rates in 2011
* No hike expected until late 2010 or 2011
* Governor says crown level no big drama but firming fast
(Adds market reaction, background, quote)
By Jan Lopatka and Roman Gazdik
PRAGUE, Aug 5 (Reuters) - The Czech central bank left
interest rates unchanged on Thursday and signalled they would
stay stable for longer than previously expected as a strong
currency and slow recovery keeps inflation in check.
The bank kept its main two-week repo rate <CZCBIR=ECI>, used
to drain excess liquidity, at an all-time low of 0.75 percent,
where it has been since the last cut in May.
Governor Miroslav Singer also said the level of the Czech
crown <EURCZK=> -- whose 6.6 percent rise against the euro this
year has led the region and curbed inflation -- was "no big
drama" if it stayed around where it is now.
The bank also raised its 2010 growth forecast to 1.6 percent
of GDP and stuck with a prediction of 1.8 percent for next year.
But it cut its forecast of the 2011 level of the 3-month
Prague interbank rate -- whose development is often indicative
of movement on official rates -- by half a percentage point to
1.4 percent. The rate on Thursday <> was 1.22 percent
Analysts said the change in the Pribor outlook most likely
took into account both official rates staying near current
levels slightly longer than previously forecast and also
probably the last quarter percentage point cut that came as it
released its last inflation report.
"We see at this point quite long stability, gradual growth
only from the second half of the next year, which is again
reaction to the recovery not being very strong," Singer said.
"Inflation pressures do not seem to us to be so significant
that they would force us to dramatically expect interest rate
changes."
No bank in the European Union's emerging eastern wing is
expected to hike interest rates in the short term.
But the policy cycles are expected to diverge later this
year, with Poland potentially raising by 25 basis points.
Romania left its cost of borrowing on hold on Wednesday,
while non-EU member Serbia, hiked its main rate in a surprise
move by a half point to 8.5 percent, citing a growing inflation
risk as the dinar, Europe's worst performing currency this year,
hovered near record lows.
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For highlights of cbank gov Singer: []
For a table of the bank's new fcasts: []
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NO DRAMA, FAST FIRMING
Market watchers have been on tenterhooks for comments on the
crown since it broke 25 per euro and started drifting into
territory where the bank has verbally intervened in the past.
Singer did not say it was a threat for now.
"If the train stops somewhere around where it is now, it is
no drama," he said. "If it continues further at this pace, then
we will be getting to levels where the inflation outlook would
change, and that would force us to react to those changes."
The crown, which had slipped weaker ahead of Singer's news
conference, firmed to 24.73 per euro but was still weaker than
Wednesday's 21-month high of 24.61. That compares to the bank's
forecast of an average 2010 rate of 25.4.
Another factor that may quell inflation and growth is the
new centre-right government's pledge to cut the fiscal gap to
4.6-4.8 percent of gross domestic product next year from this
year's target of 5.3 percent.
The cuts should include a 10 percent cut in the public wage
bill, excluding teachers, cuts in social benefits and the
freezing of a number of road building projects, but Singer said
there would be only a limited impact on inflation and rates.
"Quality-wise there is a little more visible impact on GDP
but the rest, in other words what is important for us --
inflation and interest rates -- would only be affected in a
negligible way," he said.
(Reporting by Jan Lopatka; writing by Michael Winfrey;
editing by Patrick Graham)
