POLL-Slovak June inflation seen benign, rates to stay flat

...  By Martin Santa 
    BRATISLAVA, July 3 (Reuters) - The Slovak inflation rate is 
expected to stay near record lows in June, a Reuters survey 
showed on Tuesday, and analysts forecast the central bank would 
hold key rates steady for a third consecutive month. 
    The median of forecasts by 10 analysts showed annual EU-norm 
inflation rate of 1.6 percent for June, only marginally above 
the record low of 1.5 percent in May. 
    Analysts forecast June monthly inflation of 0.1 percent, 
after flat prices in May. EU-norm data, which will be the key 
yardstick for assessing Slovak price growth for its goal to 
adopt the euro in 2009, will be released on July 16. 
    "Food and fuel prices should be the key drivers 
month-on-month," said Eduard Hagara, an analyst at ING Bank in 
Bratislava. "We do not expect demand-led inflation to show any 
significant rise." 
    Analysts said they saw a favourable outlook for consumer 
prices, with inflation benefiting from positive base effects 
throughout the year. 
    "Outlook for inflation remains positive, with the main risk 
coming from offshore factors, mainly oil prices," said Piotr 
Matys of 4Cast Limited in London. 
    The National Bank of Slovakia (NBS) cut the main two-week 
repo rate by 25 basis points in both March and April, bringing 
it to the current 4.25 percent, as the firming crown had 
tightened monetary conditions. 
    However, market watchers said the central bank was unlikely 
to ease policy further, especially after a European Central Bank 
memorandum cast doubt on whether Slovak inflation can stay low. 
    Reuters reported last week ECB staff as saying government 
pressure on energy prices did not contribute to a sustainable 
downward trend in inflation. 
    The ECB memo also said Slovakia should not count on 
automatic fulfilment of the inflation criterion for euro zone 
entry even if its price growth rate is below the required 
threshold. 
    "We consider mainly the oil price as a risk factor, which 
has not materialised significantly so far but could possibly 
influence the Slovak inflation outlook for 2008," Slovenska 
Sporitelna, a unit of Erste Bank, said in a research note. 
    "This speaks in favour of a cautious NBS stance in terms of 
interest rates," Slovenska Sporitelna said, predicting Slovak 
rates would match euro zone borrowing costs once they have 
levelled out after the expected 25 basis point ECB hike in 
September. 
    (For accompanying story table on [ID:nL03799838]) 
   
  Keywords: SLOVAKIA ECONOMY/SURVEY