In line with expectations, the bank kept its main interest rate unchanged on Thursday, leaving its two-week repo rate <CZCBIR=ECI> at 0.75 percent, the second pause in a row after raising the rate in three steps since last August. Policymakers voted 6-1, with one dissenter urging a hike now.
Governor Jiri Rusnok said on Thursday that while a quicker hike could not be excluded, the crown's slow appreciation was not making the bank nervous at the moment.
"One hike sometime at the end of this year or, say, in the last quarter of this year can be taken into consideration," Rusnok said while presenting the forecasts. "An earlier hike cannot be ruled out if the situation would be significantly different from the current assumptions."
Nearly all analysts in a Reuters poll had expected the bank to stay on hold on Thursday, and a majority expected the next tightening in the third quarter, sooner than Rusnok suggested.
The Czechs' tightening cycle follows nearly five years of ultra-loose policy of rates near zero combined with interventions against the currency. A wild card has been the crown <EURCZK=>, which has been trading weaker than the bank's outlook, possibly creating space for an earlier rate hike if that trend continued.
Some analysts said after the meeting that they still expected the central bank would be forced to move sooner as the crown will not appreciate as fast as the bank forecasts.
"We still assume that the CNB will have room for two hikes in the second half of the year, because the crown won't deliver as strong tightening of monetary conditions as the current CNB forecast projects," said Jakub Seidler, ING's chief economist in Prague.
The central bank forecasts the crown reaching a quarterly average of 24.60 to the euro by the fourth quarter this year, well above Thursday's rate of 25.51, up 0.2 percent on the day.
Its new outlook sees faster growth in 2018 and 2019, with the economy seen expanding by 3.9 percent this year, down from 4.6 percent in 2017.
(Reporting by Jan Lopatka and Robert Muller; Editing by Jason Hovet and Peter Graff)
By Robert Muller