Low Slovak March CPI boosts rate cut expectations

...policy easing in the coming months. 
    March consumer prices, calculated according to EU 
methodology, rose by 0.1 percent on the month putting the annual 
inflation rate at 2.1 percent after a record low of 2.0 percent 
seen in February, the Statistics Office said on Monday. 
    The date were in line with market expectations. 
    "The breakdown suggests that inflationary pressures from 
main components are contained and a further rate cut is on the 
cards," said 4cast Web analyst Piotr Matys. "Our baseline 
scenario is a cut by 25 basis points in the third quarter." 
    Slovakia's inflation has been slowing this year from 3.5 
percent in December as last year's jumps in energy costs, due 
rising costs of oil, fade. 
    The central bank (NBS) targets EU-norm inflation as part of 
Slovakia's plan to adopt the euro in 2009, and it sees the 
end-2007 consumer inflation rate at 1.5 percent. 
    The NBS, which lifted rates by 175 basis points (bps) last 
year, cut the key two-week repo rate by 25 bps to 4.50 percent 
at a March policy meeting, saying a strong crown had tightened 
monetary conditions and helped improve the CPI outlook. 
    The crown hit a record high of 32.710 per euro  on 
March 19, buoyed by a revaluation of its parity in the Exchange 
Rate Mechanism (ERM-2), a precursor to the euro-zone entry, by 
8.5 percent. 
    But central bank intervention combined with liquidity 
injections have since pushed it to weaker levels. 
    The crown showed no reaction to the data release and traded 
at 33.370 per euro  as of 0805 GMT, compared with 
33.500 late on Friday. 
   (For further details on March inflation please click on 
[ID:nPRG000310])