* Hungarian, Romanian, Slovak, Czech inflation slow in Oct
* Inflation seen picking up on base effects, fuels
* Hungary cbank seen cutting further, Romania on hold
* Czech, Romanian C/A data shows improved external balance
(Combines data from across region)
By Krisztina Than
BUDAPEST, Nov 11 (Reuters) - Inflation slowed across eastern
Europe in October as a deep recession subdued prices, supporting
the case for further monetary easing in Hungary but failing to
budge expectations Romanian and Czech rates will stay on hold.
Inflation has fallen steadily across the region as its
export-driven economies slid into recession on the back of a
collapse of demand in western Europe and a squeeze on credit
that has eaten into domestic demand.
Lower food prices and stronger currencies have also helped
keep a lid on price growth, but it is seen picking up in coming
months and worries over countries' broader financial stability
are also making some central banks more cautious.
Hungary's inflation <HUCPIY=ECI> surprised on the downside
again, slowing for the third month in a row, to 4.7 percent from
4.9 in September as consumer durables led a wide decline in
prices and merchants did not fully pass onto consumers a hike in
the main VAT rate to 25 percent from 20 imposed in July.
Analysts' median forecast was for 5.0 percent <HUCPIY1>.
Inflation in Slovakia, which joined the euro zone in
January, hit an all-time low of 0.4 percent []
while Romania's <ROCPI=ECI> slowed to 4.3 percent year-on-year
from 4.9 percent a month earlier. []
"Overall I think we are seeing pressures of currency and
commodity prices affecting some core goods being offset by a
greater drag on domestic demand pulling prices of household
goods lower," said Peter Attard Montalto at Nomura in London.
He expected inflation in eastern Europe to rise before
returning to central banks' targets by the beginning of 2011.
HUNGARY TO CUT
Poland's is the only economy expected to avoid a contraction
and its next move on interest rates is expected to be up next
year, especially with inflation still well above the central
bank's 2.5 percent target. Its October data is due on Friday.
In Hungary, the benign October data and a rebound in
currency markets after some weakness last month is expected to
give the central bank room to cut its 7.0 percent key base rate
<NBHI> further this month and possibly also in December.
The bank has been bringing rates down cautiously this year
after it was forced to jack up returns for investors to fend off
a financing crisis that forced it to seek IMF aid.
"I had expected a 25 basis point rate cut in November but
with markets performing well, it's possible they'll keep on
cutting 50 basis points," said Orsolya Nyeste at Erste Bank.
The central bank last month said it could significantly
undershoot its medium-term inflation target of 3 percent on the
horizon influenced by monetary policy, and that the inflation
outlook alone would require further easing.
Despite a similar deep recession, Romania's central bank is
expected to keep rates flat at 8 percent, the highest level in
the EU, at least until February due to a political deadlock that
has stalled reforms and imperilled an IMF-led bailout package.
"It (October CPI figure) doesn't change a thing for monetary
policy. Without the IMF releasing its next tranche, the central
bank will not make a move on interest rates," said Raffaella
Tenconi at Wood & Company.
In the Czech Republic, where the main rate was left on hold
at 1.25 percent earlier this month, inflation produced its first
negative reading since 2003 in October according to data earlier
this week. []
"However, we expect that deflation will be proven temporary
as low base effects of fuel prices will have upward effects on
annual prices, thus we foresee that inflation will climb to 0.8
percent by the end of the year," Takarekbank's Suppan said.
Separate data showed on Wednesday that the Czech current
account deficit was smaller than expected in September while
Romania's current account gap shrank 74.6 percent to 3.3 billion
euros in the January-September period, as a favourable side
effect of a painful recession there.
A plunge in imports at a faster pace than exports has
boosted trade surpluses in the region helping narrow current
account deficits and reduce external vulnerabilities.
(Reporting by Krisztina Than)
