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UPDATE 1-Czech central bank holds off on further rate hike in slim vote
September 27, 2017 / 2:37 PM / 25 days ago

UPDATE 1-Czech central bank holds off on further rate hike in slim vote

* 4-3 vote to hold rates, minority wanted hike

* Governor says to wait for new forecasts, ECB

* Crown gives up gains after hike bets

* Most analysts expect rate rise in November

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=CZCBIR%3DECI poll data (Updates throughout with vote, governor comments, market)

By Robert Muller and Petra Vodstrcilova

PRAGUE, Sept 27 (Reuters) - The Czech National Bank voted by a slim margin on Wednesday to keep interest rates unchanged, with the minority wanting to follow up on the bank’s first rate increase in nearly a decade in August with further tightening as the economy grows.

The Czech economy has started accelerating and wages are rising at their fastest pace in a decade. Inflation has sat at or above the central bank’s 2 percent target throughout 2017.

The central bank lifted rates from near zero in August, its first increase in nearly a decade as it becomes the first in the European Union to begin turning away from ultra-loose policy.

Governor Jiri Rusnok said board members understood economic data justified further rate hikes. He added he could imagine rates rising by more than 25 basis points over the next six months, indicating multiple increases to come.

But he said the factors in Wednesday’s board decision to hold steady were waiting for new staff forecasts at the bank’s next meeting in November and European Central Bank policy actions.

“The opinion prevailed - very slightly - there is nothing burning... and that it will be beneficial to wait for the full set of new information coming with the forecasts,” Rusnok said.

“On one hand, the economy gives a definite picture of itself. On the other hand, there are uncertainties and their explanations can improve over time.”

While the majority voted to maintain the two-week repo rate at 0.25 percent, three members wanted a 25 basis point increase to the repo rate, as well as a hefty half point rise in the bank’s Lombard lending rate to 1.00 percent.

The central bank’s rate hike in August came faster than many had anticipated after it abandoned a currency cap in April that had kept the crown weak since 2013.

But with the economy on a faster track - posting record quarterly growth of 2.5 percent in the second quarter - the market is counting on another hike this year.

A handful of analysts had expected the central bank would move again on rates this month, but most have pencilled in a November hike.

The crown briefly firmed past 26 to the euro - a barrier it has only briefly broken since being set free from its former cap level of 27 - before the rate decision, but quickly retreated. It was down 0.2 percent at 26.075 in afternoon trade.

The crown has gradually strengthened but still faces an overhang of positions, built by investors betting tens of billions of euros on currency gains once it was free, and could weaken if investors leave positions at once.

Rusnok said further rate increases will be influenced by all key economic factors including the crown.

“Rates higher by more than 25 basis points at the six-month horizon? Yes, I can imagine that,” he said. (Reporting by Petra Vodstrcilova and Robert Muller; Writing by Jason Hovet; editing by Ken Ferris)

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