UPDATE 2-Slovakia meets euro inflation test for first time

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By Martin Dokoupil

BRATISLAVA, Sept 14 (Reuters) - Slovakia met the inflation criterion for entry to the euro zone for the first time in August, data showed on Friday, and analysts said price growth should slow further below the threshold in the coming months.

Slovak prices fell by 0.1 percent on a monthly basis, and EU-harmonised inflation remained at a record low of 1.2 percent on the year, helped by food and shoe prices, the Statistics Office said.

"Slovakia met the Maastricht criterion for the first time as the 12-month average is 2.37 percent for Slovakia while the threshold is 2.56 percent," said Eduard Hagara, analyst at ING Bank in Bratislava.

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 the lowest inflation.

EU-harmonised inflation is the key gauge for the central bank (NBS), which aims to bring Slovakia into the euro zone in 2009.

All the central bank, finance ministry and analysts expect Slovakia to meet its euro test with a comfortable margin next spring.

"Oil prices remain the biggest risk as the Slovak economy is more sensitive to them than more developed euro zone countries," the ministry said on its Web Site www.finance.gov.sk.

"But even a more significant rise in oil prices will not endanger fulfilment of the (inflation) criterion," it said.

The ministry said Slovak inflation should stand at 1.6 percent in April 2007-March 2008, and at 1.5 percent in May 2007-April 2008. It sees the reference value at 2.8 percent and 2.9 percent, respectively.

The NBS said August EU-norm inflation was below its expectations, but added it may accelerate slightly in September.

"The year-on-year inflation dynamics could accelerate slightly in September compared with August, mainly due to an expected acceleration of service price dynamics as well as a significant slowdown in the year-on-year decline of fuel prices," the bank said in a statement.

FLAT RATES

Analysts said Friday's data did not change the interest rate outlook for the coming months as they expect the NBS to wait for the European Central Bank's (ECB) policy adjustments before making a move.

"These figures have no implications for monetary policy. I expect interest rates unchanged for the rest of this year," said Juraj Valachy, analyst at Tatra Banka in Bratislava.

The NBS kept the key two-week repo rate at 4.25 percent for the fourth month in a row in August, which is a 25 basis point premium over the euro zone benchmark.

The crown currency ignored the data, trading slightly weaker on the day at 33.755 to the euro from 33.700 on Thursday. (For details on August inflation pls click on [ID:nL1484940]

(Additional reporting by Martin Santa)

Keywords: SLOVAKIA INFLATION/