UPDATE 1-Slovaks stay on euro path despite inflation-cbanker

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By Martin Santa

Slovakia should stay on track to qualify for 2009 euro adoption in spite of a worsening inflation outlook, central bank (NBS) Governor Ivan Sramko said on Wednesday.

Sramko said the NBS would lift its medium-term inflation forecast at a quarterly update, due on Oct. 30, along with a decision on interest rates which markets widely expect to keep the main rate at 4.25 percent.

"Our preliminary assessment is that we do not feel a serious risk of endangering the Maastricht criteria (for inflation) so far," Sramko told reporters after a weekly government meeting.

Rising food prices caused Slovak EU-norm inflation to rebound from record lows in September but both the bank and analysts see the country meeting the euro adoption criterion for inflation by a wide margin next year.

"There will be a new quarterly forecast at the end of this month, where we will incorporate new food prices, and it is clear they will shift inflation (forecast) to higher levels," Sramko without elaborating.

The NBS's forecast in July put the year-on-year EU-norm inflation rate of 1.5 percent at the end of 2007.

Inflation, as measured by the European Union harmonised index, is the key yardstick for the bank, which plans to bring Slovakia into the euro zone in 2009.

Inflation quickened to 1.7 percent annually in September, from a historical minimum of 1.2 percent in both August and July, data showed on Tuesday, leading the NBS to say price growth could pick up further in October. For details, click on [ID:nL16530233].

Based on September's data, the euro entry test -- calculated as an average of the European Union's three countries with the lowest 12-month average inflation rates plus 1.5 percentage point -- was 2.57 percent. Slovak inflation averaged 2.1 percent.

The bank kept the key two-week repo rate at 4.25 percent for the fifth month running in September, waiting to see whether the euro zone benchmark, now at 4.0 percent, will rise further.

NBS board member Ludovit Odor said on Tuesday there was no dramatic need to tighten monetary conditions. For a story on Odor's comments, see [ID:nL16166650].

[BRATISLAVA/Reuters/Finance.cz]