(Adds central banker's comments, new forecasts)
By Peter Laca
BRATISLAVA, July 29 (Reuters) - Slovakia's central bank kept
interest rates unchanged on Monday, in line with the euro zone
level as it prepares to adopt the common currency in 2009, but
raised its forecast of inflation this year.
The National Bank of Slovakia (NBS) blamed the global rise
in food and energy costs for the higher forecast. But it said
gains in the crown before the currency was irrevocably fixed to
the euro in July should cool consumer price inflation next year.
The decision to hold rates for a 15th consecutive month,
made at a regular monetary policy meeting, left the key two-week
repo rate at 4.25 percent, where the European Central Bank
raised its benchmark rate earlier this month.
NBS Vice-Governor Viliam Ostrozlik said none of the policy
board members had proposed a change in Slovak rates, adding that
latest inflation data had only slightly deviated from the bank's
prognosis and price growth was influenced by outside factors.
"In an environment of restrictive influence of the exchange
rate and the approaching euro zone entry, the bank board decided
not to change interest rates," Ostrozlik told a news conference.
Slovakia will be the first of the larger economies in
ex-communist central Europe to join the euro zone, and analysts
widely expect it to follow the ECB's policy moves in the run up
to euro adoption on Jan. 1.
"The setting of key interest rates in Slovakia by the end of
this year will be influenced by monetary policy decisions of the
ECB rather than domestic fundamentals," UniCredit Bank analysts
said.
Like its central and eastern European peers, Slovakia has
faced accelerating inflation this year mainly due to the global
trend of rising food and oil costs. But a rapid firming in the
region's currencies has helped to mute the effects.
Hungary, which had a slight dip in inflation in June, kept
rates on hold last week, and the Polish, Czech and Romanian
central banks are expected to do the same this week or next.
Some analysts said strong household spending in Slovakia,
the European Union's fastest growing economy, would warrant
tighter monetary policy. But Slovak rates need to be at par with
the euro zone's when it gives up its national monetary policy.
Slovak inflation, measured by EU methodology, reached a
21-month high of 4.3 percent in June, and analysts expect it to
peak at around 4.8-4.9 percent in August or September.
HIGHER INFLATION FORECAST
The NBS increased on Tuesday its inflation forecast for
2008, but it expected price growth to be slower than previously
expected in 2009 due to a delayed impact of crown firming from
this year.
(For table with forecasts, please click on [])
The crown rose by 12 percent against the euro from the start
of 2008 until the switchover rate for euro zone entry was fixed
at 30.1260 crowns per euro on July 8.
Peter Sevcovic, NBS board member responsible for monetary
policy, said the new quarterly forecast showed slightly faster
real GDP growth for 2008, but he added that the crown's rise
would slow down economic expansion in 2009.
The central bank said food and energy prices remained an
upside risk for its prognosis. A possible stronger second-round
impact of higher energy and food prices on costs of services was
also an inflation risk, as was well as tightening labour market.
