Slovak inflation slows, interest rates seen flat

...analysts saw no change in interest 
rates as the country is on track to meet conditions for adopting 
the euro. 
    Inflation, calculated according to EU methodology, was 2.3 
percent on the year in November, down from a 10-month high of 
2.4 percent in October, the Slovak Statistics Office said on 
Friday. The figure was slightly above analysts' median forecast 
of 2.2 percent. 
    On the month, inflation was 0.4 percent, after 0.7 percent 
in October. 
    "The annual decline in the inflation rate was caused by the 
disappearance of last year's higher numbers (energy price 
increases)," said Eduard Hagara, an analyst with ING Bank in 
Bratislava. 
    Slovak inflation has picked up speed since September due to 
higher food costs, but the country still meets the condition for 
its planned 2009 entry to the euro zone. 
    Inflation is the main challenge for the plan to adopt the 
euro. Under the Maastricht Treaty, Slovakia's EU-norm rate must 
not exceed 1.5 percentage points above the average of three 
lowest European Union national inflation rates. 
    "Food and oil will prevail as the main driving factors for 
HICP (EU-norm inflation), but since the same factors fuel 
inflation in the EU and euro zone, we do not see significant 
risk to the Maastricht criteria," said Piotr Matys, an analyst 
with 4Cast in London. 
    The central bank and analysts expect Slovak inflation to be 
well below the euro adoption threshold when the country is 
assessed next spring for joining the common currency area. 
    However, Slovakia will also have to prove its inflation will 
stay low over time to qualify for the euro zone entry. 
    Central bank Governor Ivan Sramko said earlier this week 
that the debate on inflation sustainability would be more 
complex if the rate rose closer to the reference value. 
    The central bank will decide on interest rates on Tuesday, 
and analysts widely expect the main two-week repo rate to stay 
at 4.25 percent for the eighth month in a row. 
    Analysts said latest inflation data could signal some risks 
of demand-led pressures in the fast growing economy, and this  
should ensure a cautious monetary policy approach. 
    "The central bank could pay more attention to prices of 
services, which it can influence through monetary policy, and to 
household consumption, which was high in the third quarter," 
ING's Hagara said. 
    (For details of November inflation data please double click 
on [ID:nBSD000014]) 
    (Writing by Peter Laca and Martin Santa; editing by David 
Stamp) 
     
  Keywords: SLOVAKIA ECONOMY/INFLATION 
    

[BRATISLAVA/Reuters/Finance.cz]