UPDATE 1-Slovak inflation slows, interest rates seen flat

...disappeared from the 
statistics, and analysts saw no change in interest rates as the 
country is on track to meet conditions for adopting the euro. 
    Inflation, calculated by EU methodology, measured 2.3 
percent year on year in November, down from a 10-month high of 
2.4 percent in October, the Slovak Statistics Office said on 
Friday. Month on 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. 
    Annual inflation was slightly above analysts' forecast of 
2.2 percent, and the central bank also said price growth was 
above its prediction due to a bigger increase in food costs. 
    "Overall inflation dynamic should slightly accelerate in 
December from November, mainly due to faster year-on-year 
dynamics of fuel prices," the NBS wrote in a statement. 
    "Prices of food and services should also show higher 
year-on-year dynamics," it added. 
    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 Tony 
Austin) 
  
  Keywords: SLOVAKIA ECONOMY/INFLATION  
    

[BRATISLAVA/Reuters/Finance.cz]