Czech inflation accelerates to 17.5% in July, but less than cenbank feared

PRAGUE, Aug 10 (Reuters) - Czech inflation gained pace in July to 17.5% year-on-year but was less than the central bank had forecast, possibly taking some pressure off from further policy tightening.

While inflation hit its fresh highest rate since 1993, it was below the 17.6% expected in a Reuters poll, and also below the 18.8% result predicted by the Czech National Bank.

Tthe central bank has lifted its key interest rate CZCBIR=ECI by 675 basis points to 7.00% since June 2021, to combat soaring price growth and to try to anchor inflation expectations.

Last week, however, the central bank kept interest rates unchanged after nine hikes in a row, as the new Governor Ales Michl received backing from the majority on the bank's revamped board to keep his pledge to have rate stability for some time.

"The inflation data came out markedly below the central bank's estimate. That does not support chances for another rise in interest rates," said Patrik Rozumbersky, economist at UniCredit.

Elsewhere in the region, a surge in Hungary's core inflation to a 25-year-high and higher-than-expected headline inflation despite government price controls were piling pressure on the Hungarian central bank to raise interest rates further.

Central European policymakers have increased borrowing costs amid price pressures from both external factors such as supply chain problems and fast-rising energy prices in the wake of Russia's invasion of Ukraine, and local factors like tight labour markets and increasing wages.

The Czech crown EURCZK= barely reacted to the CPI data. The central bank has intervened in currency markets to support the crown when it came under pressure following news of Michl's appointment in mid-May.

On Tuesday, the central bank's data showed that it spent 10.6 billion euros, or 6.6% of its reserves in May and June. Some analysts estimate that that amount could have doubled over July.

Reporting by Robert Muller; Editing by Simon Cameron-Moore

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