PREVIEW-Slovak inflation seen slowing, rates to stay on hold

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WHEN: Feb. 9, 0800 GMT

* Expected to fall to 16-month low, central bank seen keeping rates unchanged

By Martin Santa

Slovak inflation is expected to have slowed to a 16-month low in January on lower energy prices, but analysts expect the central bank will keep rates unchanged in February, a Reuters poll showed on Friday.

The Reuters survey of ten analysts showed annual EU-norm inflation, the yardstick for consumer prices that is crucial for Slovakia's plan to adopt the euro in 2009, should decelerate to 2.1 percent in January from 3.7 percent in December 2006.

"More favourable development of energy prices, including gas and electricity, will be the key factor behind the inflation slowdown this year," said Lucia Steklacova, a senior analyst at ING Bank in Bratislava.

On the month consumer prices were forecast to have risen by 0.5 percent, after 0.1 percent rise in December, mainly due to higher cost of food and telecommunication services, analysts said.

Inflation peaked at 5.0 percent in July and August of 2006 due to high energy prices. Danger of future consumer price growth had pushed the central bank (NBS) to raise rates by 175 basis points in four steps last year, putting the key two-week repo rate at 4.75 percent.

But the firming crown in the past four months and a decline in world oil prices have improved Slovakia's inflation outlook and sparked market expectations of monetary policy easing in 2007.

The NBS left interest rates unchanged in January for the fourth month in a row, while it revised its end-2007 inflation forecasts to 1.5 percent, from a previously predicted 2.6 percent.

But the central bank also said it still saw possible inflation risks in energy prices and wage growth, adding that it would maintain cautious policy stance.

Analysts also did not see an imminent policy easing.

"We still hold our main scenario that the NBS will maintain stable rates during the first half of 2007," said Miroslav Frayer, an analyst at Prague-based Komercni Banka.

"In the second half of the year, inflation outlook and the strong crown will enable the central bank to cut rates."

(For table with forecasts please click on [ID:nL02597626])

((Writing by Martin Santa and Peter Laca; Editing by Ian Jones; Email: martin.santa@reuters.com; RM: martin.santa.reuters.com@reuters.net; +421 2 5341 8402))

Keywords: SLOVAKIA ECONOMY/PREVIEW

[BRATISLAVA/Reuters/Finance.cz]