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POLL-Czech rates will remain on hold as the central bank continues its crown interventions

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Written by Jason Howett

PRAGUE, October 31 (Reuters)The Czech National Bank (CNB) is likely to keep its key interest rate unchanged at 7.00% at its policy meeting on November 3 and continue to intervene in the foreign exchange market to support the crown for at least a few more months, a Reuters poll showed on Monday .

The Czech central bank has sought to keep borrowing costs steady since June after a year of sharp rate hikes totaling 675 basis points to combat inflation, which rose to 18% year-on-year in September, driven mainly by higher energy prices.

But, as with other rate-setters in Central Europe, his task is complicated by lingering pressure on currency markets, reflecting a worsening trade balance, a weaker global economic backdrop and the sharp tightening now underway by major central banks such as the Fed the US reserve system or the European Central Bank. Bank.

Since May, the Czech Central Bank has continued to intervene to “prevent excessive fluctuations” in the koruna, as any easing would increase inflationary pressures through import costs.

All 13 analysts in a Reuters poll predict the central bank will keep its two-week repo rate on hold CZCBIR=ECI by 7.00%. Most see no further rate hikes, while they said the bank could turn to a possible rate cut next year, possibly as early as May.

Until then, analysts expect the intervention to continue. Of the eight analysts who responded to the question about the possible duration of the interventions, five said they would stay for another four to six months. Two waited another one to three months for the intervention, and one had it for more than six months.

“It is in the interests of the central bank not to increase inflationary risks as a result of a possible weakening of the krona,” said Piotr Dufek, chief economist at Banka Creditas.

“The CNB has sufficient foreign exchange reserves to manage the koruna in the coming months.”

The Czech bank went into neutral mode in August when a revamped board of directors convened under new chief Ales Michal, who opposed a rate hike as a board member.

Board of Directors voted 5-2 to keep rates steady at August policy meeting and September.

Some analysts say inflation that will remain high next year could prompt the bank to raise rates again, while some central bankers have warned of the risk of bigger-than-expected wage increases as the labor market remains tight.

CNB board member Thomas Holub, who is now in the minority supporting the rate hike, told Reuters last week another increase should help anchor inflation expectations.

But vice-governor Eva Zamrazilova, one of the new members of the board, the daily Mlada Fronta Dnes reported the current level of rates was high enough.

(Reporting by Jason Howett)

((jason.hovet@thomsonreuters.com))

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