Slovak June inflation matches lows, rates seen flat

...June, data showed on Monday, but analysts said benign price 
growth and a favourable outlook will not trigger rate cuts. 
    EU-norm inflation (HICP), which will be the price growth 
yardstick for assessing Slovakia's readiness to adopt the euro 
in 2009, was 0.1 percent on a monthly basis in June, the Slovak 
Statistics Office said. 
    The annual inflation rate was 1.5 percent, matching the 
record low level seen in May and a touch below the market 
forecast of a 1.6 percent rise. 
    Among the most heavily weighted categories, food prices and 
non-alcoholic beverages fell by 0.4 percent from May, helping to 
offset a 0.1 percent monthly rise in housing prices and a 0.3 
percent increase in transportation costs. 
    "All in all, the breakdown is positive, with outlook for 
HICP remaining positive as a strong crown will help to offset 
potential offshore risks to HICP, mainly higher oil prices," 
said Piotr Matys, a 4Cast analyst in London. 
    The Slovak central bank (NBS) sees EU-norm inflation at 1.3 
percent at the end of 2007. It forecasts an average inflation 
rate of around 1.5 percent in spring 2008 when the EU will 
assess Slovakia's readiness to adopt the euro. 
    The NBS expects to meet the price stability criterion, 
defined as inflation rate of no more than 1.5 percentage points 
above the average of three lowest inflation rates in the EU, 
with plenty to spare. 
    But a recent European Central Bank memo said Slovakia should 
not count on automatic fulfilment of the inflation condition 
even if its inflation rate is below the reference value as it 
will have to prove that low price growth is sustainable. 
    The NBS cut its key two-week repo rate by 25 basis points in 
March and April, bringing it to the current 4.25 percent, after 
strong crown helped keep shop prices under control. 
    But it left rates unchanged in June and many analysts see no 
more monetary policy easing this year despite benign inflation. 
    "We maintain our view that inflation structure is not 
showing demand-led pressures," said Lucia Steklacova, senior 
analyst at ING Bank in Bratislava. 
    "But we expect the central bank to take a cautious stance 
and not change interest rates by the end of the year because of 
next year's assessment of the fulfilment of Maastricht 
criteria," Steklacova said. 
  
  Keywords: SLOVAKIA ECONOMY/INFLATION