* Czechs leave rates flat at record low
* High consumption amid deep downturn surprises
* Risks balanced, analysts still err towards further cut
* For HIGHLIGHTS double click on [ID:nLP908804]
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By Jana Mlcochova
PRAGUE, June 25 (Reuters) - The Czech central bank defied expectations of a quarter-point cut in interest rates on Thursday, saying it kept rates steady after recession-resistant consumers spent more in the face of a deep economic downturn.
Ten of the 17 analysts polled by Reuters had expected the bank would cut the main two week repo rate
Analysts said the hold was still likely to be only a breather in its aggressive campaign easing since last August, which has brought rates rates to a record low of 1.5 percent.
But central bank Governor Zdenek Tuma gave no clear sign on its next steps, saying only that the structure of first quarter economic growth data, which showed higher consumption despite a steep downturn, was a key factor.
He also said the bank's board was comfortable that the economy was developing in line with its predictions pointing to stability for the rest of the year and a recovery in 2010.
"Moreover we do not consider any of the risks a strong impulse that would move us in this or that direction, including in the direction to cut," he said.
"Finally an opinion prevailed that at the moment we would keep rates unchanged."
Two of the board's seven members who had voted for a rate cut in May were absent. The number of policymakers at each rate meeting tends to vary due to travel and other factors.
The Czech economy shrank by a record 3.4 percent in the first quarter, following a collapse in Western demand that hit export-driven industry and pushed down inflation across the European Union's former communist eastern wing.
"The upshot is that it is too soon to call the end of the easing cycle," said Neil Shearing, an economist at Capital Economics.
"While the market believes that rates could start to rise again by mid-2010, we expect them to remain at record lows throughout next year as the recovery in the real economy disappoints."
LITTLE HELP
The Czech crown
Shorter-dated interest rate swaps (IRS) corrected upward after the decision, with the 2-year IRS
Inflation dropped to 1.3 percent year-on-year last month, a tick above the bank's latest May 7 forecast, from 6.8 percent a year earlier. It was also below the bank's 3 percent plus or minus 1 percentage point target, which will switch to 2 percent in 2010.
The bank expects inflation at 1.7 percent in the third quarter of 2010 -- far above an Organisation for Economic Cooperation and Development forecast of 0.3 percent next year.
Earlier this month board member Eva Zamrazilova indicated the impact of rate cuts had not filtered into the real economy and said it was one of the reasons why she voted against easing in May. [ID:nL9602713]
Analysts also say monetary easing has had little impact on demand and only a renewal of foreign orders can drive recovery, while big rate cuts have also not filtered through to companies and households despite a drop in money market rates.
Research by the Czech Chamber of Commerce shows 76 percent of firms say lack of financing has led to cuts in production. Mortgage rates have stayed at around a minimum of 5 percent since late last year.
The three-month Prague Interbank Offered Rate (PRIBOR)
Thursday's rate decision followed a 25 basis point cut on Wednesday in Poland [ID:nLO732250]. Hungary's central bank held interest rates at 9.5 percent on Monday, resisting political pressure, but signalled it could move once financial stability returns. [ID:nLM22502] (Reporting by Jana Mlcochova; editing by Patrick Graham)