Czech central bank votes 4-1 against June rate hike, signals a hike UPDATE

Czech central bank votes 4-1 against June rate hike, signals a hike UPDATE

	Published : Thu, 28 Jun 2007 17:43 By : Agencies Print this Story

(updates with more Tuma comment from the conference, adds background)

PRAGUE (Thomson Financial) - The Czech central bank's (CNB) governing board voted 4-1 today to keep the main interest rate on hold at 2.75 pct but sees the sentiment in the economy as pro-inflationary, the banks governor Zdenek Tuma told a news conference.

May inflation and steep growth of average wages both exceeded the bank's estimates and the crown slid by more than four percent since the beginning of the year but the board didn't see upping rates vital this month, Tuma said.

'The arguments (for a hike) weren't so strong that we would have to decide immediately,' Tuma said. 'We will see next month,' he added.

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

Tuma said that upping the rate in two consecutive months would give the impression of the bank's 'panic reaction.'

The Czech Republic's economy grew 6.1 pct in the first quarter of this year, slightly above the bank's expectations.

Average wages soared 7.8 pct year-on-year and May inflation at reached 2.4 pct compared to 1.9 pct estimated by the bank.

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 forecast will indicate the rate's development with regard to the bank's 3 pct inflation target.

Tuma said there was not doubt the forecast will influence the boards decision making next month.

Asked if the bank could vote on a larger 50 basis point rise in rates next month, Tuma said: 'I can't exclude a discussion of a hike of more than 25 basis points.'

jana.mlcochova@thomson.com +420 222 191 108

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