Slovak CPI below forecast, jobless at record low

By Martin Santa

BRATISLAVA, Oct 17 (Reuters) - Slovak inflation was slightly lower than expected in September due to cheaper transport and telecommunications, data showed on Tuesday, but analysts said the central bank was still likely to tighten monetary policy.

The Statistics Office said consumer prices dropped by 0.2 month-on-month in September, putting the annual inflation rate using the EU measure at 4.5 percent.

Economists had forecast consumer prices to be flat on the month and at an annual rate of 4.7 percent in September.

In a separate release of data from the Labour Ministry, unemployment fell to a record low of 9.75 percent in September, from 9.85 percent in the previous month.

Inflation has been above the central bank's target this year as shop prices rose due to higher oil prices and demand stemming from robust economic growth.

The central bank surprisingly lifted its key two-week repo rate by 25 basis points to 4.75 percent in September to protect the 2007 inflation goal set to help make Slovaks eligible to adopt the euro in 2009.

"In general, we expect the central bank to continue tightening, but it's possible they will keep rates on hold at the October monetary policy due a stronger crown," ING bank senior analyst Lucia Steklacova said after the data release.

The currency has risen by almost 2 percent against the euro in the past month, driven by a bullish regional mood and the 2007 budget draft that keeps Slovakia on track to meet the fiscal conditions for 2009 euro adoption.

The Slovak unit hit a new all-time high of 37.760 to the euro last week and traded at 36.810 at 0850 GMT, slightly stronger from Monday's close of 36.830.

Analysts said wage growth and higher employment would also encourage the central bank to tighten policy in coming months.

Most see another 25-basis-point interest rate hike by the end of the year as the jobless rate eases further, fuelling domestic demand.

"In the short term, there is not much room left for a further drop (in the jobless rate). But in the long term view ... there is room for another 1 percent drop as big investments are taking on more people," said CSOB analyst Marek Gabris. ((Reporting by Martin Santa, editing by Chris Johnson; RM: martin.santa.reuters.com@reuters.net;Email: martin.santa@reuters.com; +421-2-5341-8402))

Keywords: ECONOMY SLOVAKIA