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BUDAPEST/WARSAW (Reuters) - Hungary and Poland will keep monetary policy loose through to 2018, shrugging off rising inflation, while the Czech central bank may be the region's first to tighten later this year, rate setters told the Reuters Central & Eastern Europe Investment Summit.
The Hungarian central bank is the most relaxed about inflation, which rose quickly in eastern European Union states from mid-2016 until it started retreating again in April.
Economic growth picked up in the first quarter of 2017 and a jump in wages, which are catching up with much higher Western European levels, could add to inflation pressures later on.
But for now, Hungarian and Polish central bankers are not worried over inflation trends or a possible tightening by the European Central Bank later this year.
Most currencies in the region are also trading near multi-week or multi-year highs, which supports loose central bank policies.
The Hungarian base rate could remain at its record low 0.9 percent until 2019 or even longer, deputy governor Marton Nagy said. The bank will also continue to squeeze out money from its 3-month deposits to maintain loose monetary conditions.
"Inflation expectations are at historically low levels and they have stayed there despite the wage rises," Nagy said.
Hungarian gross wages jumped 12.8 percent in annual terms in March, but the central bank expects inflation to reach its 3 percent target sustainably only from the first half of 2018.
Inflation in Poland also remains below the central bank's target, of 2.5 percent.
Polish rate setter Lukasz Hardt was more concerned over lower-than-inflation interest rates. "I am a bit afraid of keeping real interest rates negative for a prolonged period of time," he said in an interview with Reuters.
In the long term they might undermine the zloty's value, he said.
"If at the very beginning of next year we are to forecast negative real interest rates till the end of next year... then this would be a very crucial moment for me to decide whether we are still to tolerate (that)."
Hardt said wage growth was not a worry for now, even though it slightly exceeds productivity growth in more and more sectors of the economy.
Romanian central bank Governor Mugur Isarescu has said an effect on inflation of domestic consumption, fueled by double-digit wage increases, remained muted for now.
The Czech central bank could however tighten rates in the coming year.
The bank's quarterly staff forecast assumes the first hike in the third quarter, as the economy grows and Europe's tightest labor market pushes up wages and prices.
Board member Vojtech Benda said he wanted to wait a few months before he makes up his mind on the timing of a tightening.
Early last month, the bank removed a cap which had kept the crown weaker than 27 against the euro since 2013.
A conviction by market players the crown is somewhat undervalued, and on the other hand an overhang of long crown positions worth tens of billions of euros, may expose the crown to volatility for months as the currency looks for a balanced rate.
Benda said more firming of the crown, which trades around 26.5 this week, would mean fewer interest rate hikes.
But hikes were coming anyway, probably either at the end of this year or early in 2018, he said.
Writing by Sandor Peto, Editing by Krisztina Than and John Stonestreet