* Rates flat, in line with expectations
* Crown flat, budget in focus
* For Highlights double click on [ID:nLO326900]
(adds comments from news conference, analyst)
By Jana Mlcochova
PRAGUE, Sept 24 (Reuters) - The Czech central bank kept interest rates flat on Thursday and in line with expectations as the inflation outlook remained low, the currency strong and the economy showed only weak signs of recovery.
Five of the bank's seven board members voted to leave the
main two week repo rate
Analysts said the Czech easing cycle could be at a bottom, but the dissenting votes could hold out the chance of one more cut, especially if politicians approve tighten the budget.
Poland is seen at an end after a similar easing cycle while in Hungary, which delayed cuts earlier this year due to financial stability concerns, rates are expected to drop to 7.5 percent after an expected 50 basis point cut on Sept. 28.
"Since the previous board meeting until today, we see the risks in a rather anti-inflationary direction," central bank Governor Zdenek Tuma told a news conference after the decision.
But he said the board discussed whether a small cut in the already low rates made economic sense, after the bank cut rates by 250 basis points since August last year.
The Czech export-driven economy contracted by a record 5.5 percent in the second quarter, and the bank predicts just 0.7 percent growth for the all of 2010.
Inflation has dropped to 0.2 percent year-on-year in August and the bank expects it to climb to 1.9 percent at the end of the next year, just below its target of 2 percent.
DOWNSIDE RISKS
The crown
All 18 analysts polled by Reuters had predicted the policymakers would keep rates unchanged on Thursday.
The country's budget has sunk into a deep deficit and the government has warned the country would have to ask for an International Monetary Fund (IMF) loan some time down the road if politicians took no action.
Party leaders were in talks on Thursday to agree on a package of budget cuts to bring the 2010 total fiscal gap to around 5 percent of GDP from the proposed 7.4 percent. [[ID:nLO48701]
This would make the Czech Republic one of the first countries in Europe to start reducing the budget deficit that is not urged by the IMF.
Finance Minister Eduard Janota said the austerity package would take 0.6 percent off growth next year, resulting in an 0.3 percent contraction.
Tuma said he would welcome the fiscal consolidation plan as the right step, which could have an anti-inflationary effect. Large deficits could lead to higher rates, he said.
Some analysts said fiscal consolidation could support one more policy easing.
"We are in favour of stable rates for next 2 quarters (and then hike)," said Martin Lobotka, an analyst at Ceska Sporitelna.
"Stronger crown or negative economic data once government support is withdrawn can bring another cut, though."
(Additional reporting by Jason Hovet; Editing by Ron Askew and Andy Bruce)