(Adds central bank comments)
By Peter Laca
BRATISLAVA, May 27 (Reuters) - Slovakia's central bank kept
interest rates on hold, as expected, on Tuesday for the 13th
consecutive month as the country gears up for euro adoption next
year.
At its first policy meeting since the European Commission
judged Slovakia fit to adopt the euro in 2009, the bank kept its
main two-week repo rate at 4.25 percent, a 25 basis point
premium over the euro zone benchmark.
Of the larger countries likely to join the European Union
this decade, only the Czech Republic has looser monetary policy,
with its key rate at 3.75 percent.
Hungary raised its benchmark by 25 basis points to 8.5
percent on Monday, while some policy makers in Warsaw and Prague
are contemplating higher borrowing costs to stave off a surge in
inflation.
The Slovak central bank has held rates steady for just over
a year despite accelerating price growth, and has said inflation
is fuelled by factors outside its influence -- mainly the global
increase in the costs of food and energy.
NBS Governor Ivan Sramko said recent economic data were in
line with expectations, but added the bank needed to wait for
details of gross domestic product growth to see if the fast
growing economy is not creating additional inflation risks.
"Although economic growth is not signalling overheating so
far, and there are not deepening (existing) or emerging new
risks, the NBS considers it important to know the structure of
GDP," Sramko told journalists.
The region's growth leader, Slovakia saw its economy expand
by 8.7 percent in the first quarter on an annual basis.
Providing the European Central Bank (ECB) does not hike
rates, the NBS will have to ease its monetary policy to fall in
step with the single currency area as part of euro adoption.
Sramko would not comment on when or how borrowing costs
would be aligned.
NO RUSH TO CUT RATES
Analysts said signs of demand-led pressures in Slovakia
would probably prevent early monetary policy easing in the small
and open central European economy.
UniCredit Bank analysts in Bratislava said slightly
higher-than-expected GDP growth in the first quarter and a
strong annual rise in retail sales meant the NBS might want to
keep monetary conditions more restrictive.
"Even despite monetary conditions tightening through the
exchange rate channel (crown strengthening), it is possible that
the NBS will proceed with harmonisation of key interest rates as
late as at the end of the year," UniCredit Bank said in a note.
Slovak inflation, measured by EU methodology, reached a
16-month high of 3.7 percent in April. Market watchers see a
further acceleration to around 4 percent in the summer, compared
with the NBS's forecast of 2.8 percent for the end of this year.
STRONG CROWN
Slovakia's efforts to tame inflation have been helped by its
firming currency, which has reached repeated record highs in
recent weeks as investors bet on the country seeking a strong
switchover rate for swapping crowns for euros.
The Slovak unit was little changed after the interest rate
decision, trading at 31.090 per euro on Tuesday.
The Slovak government will negotiate with EU authorities
over the conversion rate for euro zone entry in the coming
weeks, and Prime Minister Robert Fico has said a strong exchange
rate was needed to counter inflation risks.
The market widely believes Slovakia will revalue the crown's
peg to the single currency within the Exchange Rate Mechanism
ERM-2. The unit now trades 12.3 percent above the central parity
rate of 35.4424 crowns per euro.
Central bank officials did not comment on current crown
movements on Tuesday, in line with the bank's policy.
(Reporting by Peter Laca; Editing by Michael Winfrey and
Gerrard Raven)
