* Czech June CPI flat vs May, +1.2 pct y/y
* Romanian CPI flat vs May, +4.4 pct y/y
* Slovak inflation also flat, Bulgaria CPI falls
* Czech unemployment slips more than expected
By Michael Winfrey
PRAGUE, July 12 (Reuters) - Consumer price growth ground to
a halt in the European Union's emerging East in June, data
showed on Monday, which analysts said would keep interest rates
low in the mid-term and could push down some short-term bond
yields.
Policymakers across central and Eastern Europe are walking a
fine line between nurturing a fragile economic recovery while
cutting back swollen budget deficits and public debt with
reforms that are expected to bear down on inflation.
Interest rates are at record lows in the Czech Republic,
Romania, Poland and Hungary, but rather than return to
tightening at the end of the year as many analysts had expected,
the outlook increasingly points to central banks saying put.
Czech prices were flat in June from the previous month and
up 1.2 percent versus a year earlier, at the bottom off the
Czech central bank's 1-3 percent target range. Analysts had
forecast 0.2 percent and 1.3 percent price growth, respectively.
Romanian data showed a similar development, with zero price
growth from the previous month and inflation of 4.4 percent on
an annual basis.
"There are no signs of inflation pressures anywhere," said
Neil Shearing, an economist at London-based Capital Economics.
The slight decline in Czech inflation came despite better
than expected unemployment figures. The jobless rate fell to 8.5
percent in June, from 8.7 a month earlier and analysts'
forecasts for 8.6.
The Czech data supported comments made last week by central
bank Governor Miroslav Singer, who said interest rates would
remain at record lows longer than previously expected.
[]
A similar development was seen in euro zone member Slovakia,
where price growth was flat on the month while in Bulgaria,
which is still struggling to exit recession, monthly price falls
accelerated. []
The trend is expected to continue in Hungarian and Polish
data -- the latter of which is expected to show inflation at a
34-month low -- due on Tuesday. <ID:nLDE6680L5>
BOND YIELDS DOWN
Weak domestic demand and fiscal tightening in Romania and
the Czech Republic is expected to keep price pressure low, even
though Bucharest has agreed to hike value added tax this year.
Another factor is currencies. The region is expected to
track the euro weaker against the dollar but appreciate against
the single currency by as much as 8 percent for the Polish zloty
in the next 12 months <EURPLN=>, a factor that keep price
pressures subdued. <CEEFXPOLL01> []
Capital Economics expects Czech, Hungarian and Romanian
interest rates to stay put until 2012, while most analysts see
Polish rates rising at the end of the year.
That could also help push short-term bond yields lower,
possibly counterbalancing jittery investors who have demanded
higher premium on Romanian, Hungarian, and other emerging
European debt because of fears over EU economic stability.
"The data can possibly mean that bond yields could drop a
little bit, due to the inflation outlook, among other factors,"
said David Marek, chief economist of Patria Finance.
The yield on the Czech two-year government benchmark
<CZ1001887=> slipped five basis points following the inflation
data to 1.815 percent.
(Reporting by Michael Winfrey; Editing by Toby Chopra)
