(Adds euro zone inflation data, reference value, comment)
By Peter Laca and Marcin Grajewski
BRATISLAVA/BRUSSELS, April 16 (Reuters) - Slovakia passed
the nominal inflation test for joining the euro zone in March,
leaving an uncertain outlook for future price growth as the
single obstacle for the approval of its bid to join the single
currency next year.
Slovakia's 12-month average inflation was 2.2 percent in
March, comfortably below the permitted ceiling of 3.2 percent,
figures from European Union statistics office Eurostat showed.
The European Commission will say on May 7 whether Slovakia,
which joined the European Union in 2004, can adopt the currency
now shared by 15 nations.
March was the last month in the 12-month period set for
assessing Slovakia's readiness to adopt the euro in 2009.
Slovak inflation calculated using European Union methodology
was 0.3 percent on the month in March, raising the annual rate
to 3.6 percent, the highest since December 2006, from 3.4
percent in February.
The year-on-year figure exactly matched inflation in the
euro zone, which was revised up from a preliminary reading of
3.5 percent.
Inflation was the key challenge for Slovakia in its ambition
to adopt the euro as the first of the four largest ex-communist
EU members in central Europe.
The worries over the inflation outlook stem from the fact
that many poorer EU countries catching up with the core of the
euro zone have been able to keep inflation low with the help of
appreciating currencies which cut prices of imported goods.
Countries that have fixed their currencies have seen their
inflation rise, such as the Baltic states and new euro zone
member Slovenia.
The sustainability of low inflation is considered a
necessary condition for euro adoption, because policymakers have
very limited room to correct price swings when they give up
their independent monetary policy.
"The key debate will include the impact of the strengthening
Slovak crown against the euro on inflation," said Jaromir
Sindel, economist at Citibank in Prague.
"The European Central Bank might turn slightly negative
because of this, but it has only an advisory role ... I think
the politics (supporting Slovak entry) will prevail," he said.
Sindel added that Slovakia, whose economy soared by 10.4
percent last year, should revalue the crown currency prior to
fixing the crown irrevocably to the euro later this year to
limit the future inflation pressure.
The crown currency showed little reaction to the data,
trading at 32.315 to the euro <EURCZK=> at 0908 GMT, from 32.29
ahead of the release.
The EU has urged Slovakia to tighten fiscal policy to
counter price pressures that may arise after the country gives
up its independent monetary policy.
The Slovak government of leftist leader Robert Fico has
responded by cutting the ceiling for the 2008 public finance
deficit and setting a more ambitious fiscal plan for 2009-2011.
For Eurostat report, click on.................. []
For Slovak CPI table, click on................. []
For Slovak INSTANT VIEW, click on.............. []
For euro zone inflation table, click on........ []
(Additional reporting by Martn Santa in Bratislava; writing by
Peter Laca and Jan Lopatka; editing by Stephen Nisbet)
