Slovak Feb CPI benign, may bring forward rate cut

...the possibility of a sooner-than-expected easing of 
monetary policy. 
    The Statistics Office released data on Tuesday showing the 
annual rate of consumer price inflation eased to 2.7 percent in 
February, in line with market expectations, from a 3.0 percent 
rise in the previous month. 
    Analysts said the overall structure of price growth was 
developing favourably, adding there was a slowdown in the growth 
dynamics of food and housing prices in February compared with 
the previous month. 
    "These figures (February CPI) are favourable for meeting the 
Maastricht criterion," said Tatra Banka analyst Juraj Valachy of 
the data calculated under local methodology. 
    "We expect the central bank could cut interest rates by 25 
basis points already in the second quarter and these inflation 
figures support this view." 
    The central bank, which targets inflation calculated by the 
EU methodology as part of country's plan to adopt the euro in 
2009, sees the end-2007 inflation rate at 1.5 percent. 
    Most analysts expect the central bank (NBS) to start 
monetary easing in the second half of the year, but a strong 
crown could accelerate the process. 
    "The timing of the first rate reduction depends mainly on 
the crown's development," said Miroslav Plojhar, chief analyst 
at Citibank Prague.  
    He said he expects the central bank to cut rates in 
mid-year, though if there is a "continued appreciation of the 
crown significantly below 34.0 per euro, a first rate cut by 
25-50 basis points will come sooner". 
    The crown hit a record of 33.80 per euro last week, driven 
by expected foreign direct investment inflows and record 8.3 
percent GDP growth in 2006. 
    The jump in the crown triggered direct intervention by the 
central bank on Thursday to cap the currency's rise. 
    The crown weakened after the data to 34.150 per euro from 
34.085 before the release, and was trading at 34.120 per euro 
 as of 0920 GMT.