(Adds market reaction, fresh analyst comment)
By Peter Laca
BRATISLAVA, March 25 (Reuters) - The Slovak central bank
held its interest rates unchanged on Tuesday, keeping borrowing
costs stable for the eleventh month in a row as the country
approaches a judgement on its bid to adopt the euro in 2009.
The decision, made at the monthly monetary policy meeting,
held the key two-week interest rate at 4.25 percent and
preserved a 25 basis point premium over the main eurozone
interest rate.
The central bank did not comment on the rate decision,
saying board members will provide more information at a news
conference scheduled for 1 p.m. (1200 GMT).
The rate verdict was in line with market expectations and
the crown showed no immediate reaction, trading flat at 32.630
per euro <EURSKK=>.
The NBS has held borrowing costs unchanged amid accelerating
inflation, saying consumer price growth has been driven by
rising costs of food and energy, which are outside the influence
of its monetary policy.
The central bank has also repeatedly said that record fast
economic growth, which reached an annual 10.4 percent last year,
is not creating demand-led inflation pressures.
Analysts expect Slovak rates to stay on hold for several
more months before the NBS will have to align its borrowing
costs with the eurozone as part of the euro adoption process.
"While inflation acceleration and associated risks could
speak in favour of a small rate hike, the approaching euro
adoption, assuming the assessment goes well, means the impact of
such a move would only be short-lived," Slovenska Sporitelna
analyst Michal Musak said.
"Adoption of the European currency will also mean adopting
the European interest rates," Musak added.
Slovakia's EU-norm inflation rate jumped to a 14-month high
of 3.4 percent on an annual basis in February, from 3.2 percent
in the previous month.
But the 12-month average inflation rate, which is the key
price growth gauge for assessment of the readiness to join the
euro zone, remained well below the euro adoption threshold.
Slovakia predicts it will meet all nominal criteria for
adopting the euro when the European Commission, the European
Union's executive arm, makes its recommendation on Bratislava's
application to join the euro zone, which it is expected to do in
April or May.
Slovakia also has to prove its inflation will stay under
control after euro zone entry takes away the cooling impact of a
firming crown on consumer prices, the country having given up
its independent monetary policy.
"Taking into account rising inflation, we think that the NBS
will maintain its hawkish rhetoric at the press conference,
attempting to put a curb on inflation expectations," said Eduard
Hagara, an analyst at ING Bank in Bratislava.
Hagara said ING expected the NBS to bring its borrowing
costs to the eurozone level in the second half of 2008.
(Editing by Gerrard Raven)
