Slovak Aug CPI stays at 2-yr low, euro test in sight

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BRATISLAVA, Sept 11 (Reuters) - Slovak consumer prices edged up unexpectedly on the month in August, but analysts said the country is on track to meet a euro entry test and interest rates are set to stay on hold in the near term.

Tuesday's data showed annual inflation held at a two-year low of 2.3 percent while monthly inflation rose 0.1 percent, above market expectations of a 2.2 percent annual price rise and a 0.1 percent monthly drop, according to local calculation standards.

However, analysts said Tuesday's data confirmed expectations that Slovakia could meet the euro adoption threshold for inflation for the first time this month despite a nearly record 9.4 percent economic growth rate in the second quarter.

They also still see the key two-week repo rate staying at 4.25 percent this year as the Slovak central bank awaits a European Central Bank rate rise to bring Slovak rates into alignment with the ECB benchmark, now at 4.0 percent

"This (inflation) figure is in line with the central bank's expectation and we do not see any reason for an interest rate change before the end of the year," said Juraj Valachy, analyst at Tatra Banka in Bratislava.

Housing, water, electricity, gas and other fuels prices were up 0.4 percent on the month in August, after being flat in July.

Transportation prices growth, influenced mainly by oil costs, also quickened to 0.6 percent, from 0.2 percent in July.

"It was slightly higher than we had expected as the housing category rose the most, driven by imputed rents," said CSOB analyst Silvia Cechovicova.

Slovak inflation accelerated last year due to hikes in energy prices for households, but these price pressures have eased due to government pressure on utilities and the firming of the crown currency against the euro.

Central Bank (NBS) Governor Ivan Sramko said last week the country's chances of joining the euro zone in 2009 were rising due to positive inflation trends, adding price growth should stay below the reference value at least for two years after the entry.

To enter the euro zone, a candidate country must keep inflation no more than 1.5 percentage point above the average of the three EU states with lowest inflation.

The statistics office will release EU-norm inflation data on Sept. 14, and analysts expect a 1.2 percent year-on-year rate. The NBS expects the harmonised index to be at 1.5 percent in December.

In a separate release, data showed Slovakia's foreign trade deficit narrowed to a lower-than-expected 1.78 billion crowns ($72.91 million) in July, from this year's record gap of 5.55 billion in the previous month.

(For detailed data please click on [ID:nL11530270] and [ID:nL11562391])

(Additional reporting by Martin Santa)

($1=24.44 Slovak Crown)

Keywords: SLOVAKIA INFLATION/