Slovak Nov CPI rises, higher rates seen unlikely

    By Martin Santa 
    BRATISLAVA, Dec 11 (Reuters) - Slovakia's inflation was above 
forecasts in November due to higher gas and food costs, but 
analysts said a positive price outlook and firming crown 
currency may prevent monetary policy tightening. 
    November consumer prices rose by 0.6 percent month-on-month, 
putting the annual inflation rate at 4.3 percent, the Statistics 
Office said. 
    A Reuters poll put inflation at 0.3 percent over the month 
and 4.0 percent over the year. 
    The data was calculated according to domestic methodology 
which differs slightly from EU methods. The central bank (NBS) 
sets its targets according to European Union standards as part 
of Slovakia's plan to adopt the euro in 2009. 
    "Today's (inflation) figures were a surprise for us, but 
they have no significant impact on our economic policy 
assumptions," said Komercni Banka analyst Miroslav Frayer. "The 
CPI was pushed up mainly by prices the NBS cannot influence." 
    Slovak inflation has been slowing down from an August peak 
of 5.1 percent due to fading impact of last year's increases in 
utility prices. 
    The central bank has raised the key two-week repo rate by 
175 basis points this year to fend off inflation pressures 
stemming from energy costs and economic growth, which showed the 
highest ever annual reading of 9.8 percent in the third quarter. 
    However, inflation will slow further next year because 
energy prices will either fall, or stay flat, and the strong 
crown has also helped prevent jumps in consumer prices. 
    "Inflation outlook for 2007 is relatively optimistic. Annual 
inflation should fall below 3 percent as early as in January, 
mainly thanks to regulated (utility) prices," said CSOB Bank 
analyst Silvia Cechovicova. 
    Cechovicova said the central bank may raise the key interest 
rate by a further 25 basis points in the coming months, but most 
market watchers said the borrowing costs probably already peaked 
at the current 4.75 percent. 
    "We don't see further rate hikes as the strong crown has 
already tightened monetary conditions," said Tatra Banka analyst 
Juraj Valachy. "CPI outlook is good and there is no reason to 
raise rates." 
    The crown has firmed by 7 percent in the past three months, 
and a rising currency limits price growth faster than rate 
increases. 
    The Slovak unit hit a new all-time high of 35.155 per euro 
on demand from London-based banks on Monday, but dealers said 
market liquidity was low and the currency could show increased 
volatility by the end of the year. 
 ((Reporting by Martin Santa, Writing by Peter Laca, Editing by 
Ian Jones; bratislava.newsroom@reuters.com; Reuters Messaging: 
martin.santa.reuters.com@reuters.net; +421 2 5341 8402)) 
  Keywords: SLOVAKIA INFLATION/RATES