Slovak CPI above forecasts, rate cut timing blurred

    By Martin Santa 
    Higher than expected Slovak 
consumer price data on Friday could blur the timing of an 
expected interest rate cut, but does not jeopardise the 
country's drive toward euro entry, analysts said. 
    Slovak consumer prices rose by 1.0 percent month-on-month in 
January, putting the annual inflation rate at 3.0 percent. While 
the headline figure was down from 4.2 percent in December, it 
exceeded the median forecast of 2.6 percent in a Reuters poll. 
    "The actual outcome exceeded our forecast of 2.5 percent 
year-on-year and is clearly a negative surprise for the market. 
However, there is no need for panic," said analysts at 
Raiffeisen Zentralbank. 
    Slovakia is looking to adopt the euro in 2009, and is 
struggling to keep consumer price growth in line with the 
Maastricht criteria for entrance to the euro zone. 
    Analysts said Friday's data, calculated under local 
methodology, were disappointing but due mainly to the influence 
of regulated prices -- which is higher than in EU-norm 
calculations. 
    The central bank, which targets EU-norm inflation, predicts 
that rate will fall to 1.5 percent at the end of 2007. The 
euro-entry inflation ceiling in December was 2.9 percent. 
    The central bank hiked the key two-week repo rate by a total 
of 175 basis points with a series of increases in the past year. 
    But a strong crown -- which showed no reaction to the data  
-- has helped keep a lid on inflation despite a booming economy 
and growing wages. 
    The NBS left rates unchanged in January for the fourth month 
in a row but an easing of policy is still expected, though 
possibly not until the second half of the year, analysts said. 
    "The outlook for meeting the Maastricht criteria is good," 
said Slovenska Sporitelna analyst Maria Valachyova.  
    "However, there are still risks which should prevent the 
central bank from any hasty interest rate cuts." 
    In a separate data release, the foreign trade balance showed 
a deficit of 12.48 billion crowns ($468.3 million) in December, 
above the market prediction of a 10 billion crown gap. But 
analysts said the outlook remains bright due to a burgeoning 
auto industry which is gearing up production to be exported. 
    "We expect accelerating exports from January, and a 
reduction of the deficit by half this year." said Lucia 
Steklacova, senior analyst at ING Bank Bratislava. 
 

[BRATISLAVA/Reuters/Finance.cz]