POLL-Slovak April inflation seen easing to record low

...

WHEN: May 16

*Record low inflation expected, central bank seen holding rates on hold

By Martin Santa

Slovakia's annual EU-norm inflation rate is expected to have fallen to an all-time low in April, a Reuters poll showed on Monday, but analysts predicted the central bank would pause in its policy easing cycle in May.

The median of forecasts by 11 analysts showed annual EU-norm inflation rate of 1.9 percent in April, the smallest growth ever, after a 2.1 percent annual increase in March.

Analysts also forecast monthly inflation of 0.1 percent, the same as in March, when the data is released on May 16.

"The slowdown of the annual EU-norm CPI rate is due to the higher base last year," said Prague-based Komercni Banka analyst Anne-Francoise Bluher.

"For April this year, price of most categories in the consumer basket should have registered only minimal changes against the previous month." EU-norm inflation, the key inflation yardstick for assessing Slovakia's preparation to adopt the euro in 2009 as planned, slowed down at the start of 2007 as the impact of last year's energy prices hikes faded away.

In April, the central bank revised its end-2007 annual inflation forecast to 1.3 percent from 1.5 percent.

An improved inflation outlook, partly due to a rising currency, allowed the National Bank of Slovakia (NBS) to cut the key two-week interest rate by 25 basis points in March and April.

Analysts said there would be room for at least one more rate cut this year, but they predicted the central bank would take a break in policy easing in May.

"I expect no change in interest rates, as the crown has stabilised and the NBS (interest rate) is close to ECB (interest rate)," said PPF Asset Management analyst Martin Pohl.

Ten out of the 11 analysts forecast the NBS to keep the two-week repo rate at 4.25 percent at the monthly monetary policy meeting on May 29, while one saw a 25 basis point cut.

Economists saw persisting risks in world oil prices, which pushed inflation up last year and which could still threaten fulfilment of the inflation criterion for the euro zone entry.

"Moreover, the NBS would probably hesitate to cut rates much further at a time of very strong growth, even though it is to a large extent non-inflationary," said Nordea analyst Anders Svendsen.

The Statistics Office will release an estimate of first quarter GDP growth on May 15, and some analysts saw double digit growth after a 9.6 percent rise in the last quarter of 2006.

(For accompanying table please click on [ID:nL07236690])

Keywords: SLOVAKIA ECONOMY/POLL

[BRATISLAVA/Reuters/Finance.cz]