Czech central bank leaves interest rates unchanged UPDATE

Czech central bank leaves interest rates unchanged UPDATE

	Published : Thu, 28 Jun 2007 14:24 By : Agencies Print this Story

(adds detail on economic climate)

PRAGUE (Thomson Financial) - The Czech central bank left its main interest rate unchanged at 2.75 pct today, and analysts say the strength of the Czech crown will be the key to possible further rises this year.

The Czech Republic's economy grew 6.1 pct in the first quarter of this year and, with average wages soaring 7.8 pct year-on-year and May inflation at 2.4 pct, most analysts expect the bank to hike the rate soon, most likely after a quarterly update to the central bank's inflation forecast in July.

The Czech crown has weakened against the euro since the beginning of the year by more than 4 pct, showing another reason for a hike.

'If the crown strengthens in the second part of the year the central bank will, after the likely July hike, take a break for a few months,' said Ales Michl, an analyst at Raiffeisenbank.

'Our forecasts sets the crown at 27.40 in November in which case we only count on one interest rate hike this year,' said David Navratil, an analyst at bank Ceska Sporitelna.

Today the crown stood at some 28.60 against the euro compared to 27.55 in January.

Analyst say the crown has been weakened by uncertainty about Federal Reserve decisions on the US interest rates to be made later today and because it has become, due to the local low interest rates, a funding currency for carry trades that use the Czech currency to earn higher yields elsewhere.

The central bank raised rates by 25 bps points on May 31, bringing borrowing costs in the former communist state to their highest level in four years.

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