* C.bank chief outvoted on rates
* Bank discussed currency-easing measures
* For TEXT of meeting minutes, click on [ID:nL272403]
(Adds analyst, details, interest rate reaction)
By Jan Lopatka
PRAGUE, Oct 2 (Reuters) - Czech central bank chief Zdenek Tuma was one of two dissenters who argued for lower interest rates when the bank's board voted to keep them on hold last week, signalling the Czech easing cycle may not have finished.
For the first time since publication of voting records began at the start of 2008, Tuma was on the losing side of a vote -- by 5 to 2 -- showing the normally consensus-building governor strongly felt the need to ease policy further as the economy faces a weak recovery.
The minutes of the board's meeting, released on Friday, also showed that in the light of rates being already low, the board discussed alternative ways to pursue a weaker exchange rate and thus looser monetary policy.
The Czech economy dropped into a deep recession this year, falling 5.5 percent year-on-year in the second quarter, and the bank only expects a slow rebound and sees inflation risks shifting downwards from its latest forecast made in August.
But, amid debate as to whether further rate cuts would have any effect, the board voted to leave the cost of money unchanged at an all-time low of 1.25 percent at the Sept. 24 meeting.
The other board member voting for a 25 basis point cut was Vice-Governor Miroslav Singer.
"The prevailing view in the board was that the resulting balance of risks to the fulfilment of the August forecast was anti-inflationary, although the members differed in their opinions about the intensity of the risk," the minutes said.
They said some board members saw inflationary risks broadly balanced but that some expressed the opinion that it was "highly likely the inflation target would be significantly undershot unless monetary policy was eased."
The bank will next update its forecast in November. A shift in inflationary risks would mean the next outlook for price growth will be lower, implying looser rate policy may be seen as required to meet the bank's 2 percent inflation target.
END TO EASING?
Interbank interest rates dropped as much as 8 basis points
after the minutes were released, with 2-year interest rate swaps
Analysts said the move looked like the market may be starting to price in another cut.
"I still see the possibility of a rate cut ahead. There's still pressure on the economy on the export side and also on unemployment," said Simon Quijano-Evans, an economist at brokerage C. A. Chevreux.
"In addition to the fact that the Czech crown is the best performer in the region, so the tightening of the monetary conditions is still coming from the crown side."
The Czech crown dropped slightly after the minutes to a
session low of 25.475 to the euro
The crown has outperformed its central European peers this year, gaining 5.2 percent since January.
The minutes showed that in the light of rates being already low, the board discussed potential alternative ways to pursue a weaker currency and thus looser policy, but gave no details.
Any such measures would be a rare market intervention from the bank, which only acts if there is a sharp deviation from what it sees as a path justified by economic fundamentals.
"Doubts were repeatedly expressed about whether an interest rate reduction would, in the present situation, have the desired effect on lending, the exchange rate and thus inflation at the monetary policy transmission horizon," the minutes said.
"In connection with the potential continued build-up of anti-inflationary risks, and with regard to the already limited rate-lowering options of monetary policy, The board also debated other monetary policy instruments that could be used to affect the exchange rate dynamics and establish easier monetary policy." (Reporting by Jan Lopatka and Jason Hovet; editing by Stephen Nisbet and Toby Chopra)