UPDATE 2-Czech central bank divided over crown intervention

* Board did not agree whether extra easing tools needed

* FX interventions singled out as possible extra tool

* Impact of fiscal tightening on FX firming was discussed

(Adds analyst, details)

PRAGUE, Oct 5 (Reuters) - The Czech central bank (CNB) board is divided over whether further monetary easing is needed to prop up the recession-hit economy, minutes from the bank's Sept. 27 meeting showed on Friday.

The seven-member board disagreed over whether to intervene to weaken a strong crown, although they did agree that intervention would be the preferred tool to help pull the economy out of recession now that interest rates are near zero.

The central bank last week voted five to two to cut the key two week repo rate

to an all-time low of 0.25 percent, while consumer spending is weak and there is a concern the economy could fall into deflation.

Some members of the board said, however, that higher global food and energy prices still pose a risk of inflation.

"The minutes suggest there is still quite a strong anti-unconventional measures (intervention) camp in the CNB board and that even trimming the 0.25 percent level on the two-week repo rate would be difficult to push through in the coming months," said Vojtech Benda, a senior economist at ING Commercial Banking.

By mentioning FX intervention as the only possible next policy easing tool, the bank shows its priority is to support exports, he said.

In a Reuters poll of analysts before the September meeting, the median forecast put rates at 0.25 percent for the next 12 months.


The crown

has firmed nearly 4 percent since the end of June, despite a rate cut on June 28, the first after more than two years of rate stability. The currency rose 0.2 percent on Friday to 24.872 to the euro, along with other central European currencies.

The crown exchange rate is a key variable for the bank, which projects price growth to slow below its 2 percent target by the end of the next year. A strong currency would exacerbate the disinflationary trend.

The minutes showed that board members repeatedly said the bank would need to take account of crown appreciation in future monetary policy deliberations.

The policy panel discussed whether the appreciation was a result of the market's view of the government's fiscal situation, the minutes said.

The centre-right government of Prime Minister Petr Necas has preferred cutting debt to measures to stimulate growth, which has helped it bring sovereign bond yields to record lows.

Even while the economy has posted three straight quarters of contraction, markets have seen Czech assets including the crown as central Europe's save-haven investments.

But opposition has grown within the cabinet to the strict fiscal policies.

Planned rises in the value-added tax (VAT), designed to help bring the public sector deficit below the EU-prescribed 3 percent of GDP next year, are opposed by several deputies from within Necas's own party and may not pass the lower house, which could lead to a government collapse.

The minutes said board members mentioned several times that the uncertainty regarding the VAT hike represented a downside risk to inflation.

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For HIGHLIGHTS from Sept 27 mtg.............

For STORY from Sept 27 mtg..................

(Reporting by Jana Mlcochova; Editing by Jason Hovet and Jane Baird)

((jana.mlcochova@thomsonreuters.com)(+420 224 190 479)(Reuters Messaging: jana.mlcochova.reuters.com@reuters.net))