(Adds central bank, analyst comments in paragraphs 4-6, 14-15)
By Peter Laca
BRATISLAVA, Dec 9 (Reuters) - The Slovak central bank cut
interest rates by 75 basis points on Tuesday, aligning borrowing
costs with the euro zone just three weeks before the country
becomes the currency bloc's 16th member.
The National Bank of Slovakia (NBS) brought the main
two-week rate to 2.50 percent in what analysts expect to be its
last rate decision before the country's monetary policy comes
under the umbrella of the European Central Bank (ECB) on Jan. 1.
Although the bank was not formally scheduled to decide on
rates at its meeting on Tuesday, many analysts had expected it
to cut after ECB's similar rate move last week. Slovak rates
must match the euro zone's at the time of euro zone entry.
"With euro zone interest rates likely to remain unchanged
until the Governing Council's next meeting in January, the work
of Slovak policymakers is done," Neil Shearing, Emerging Europe
Economist at Capital Economics said in a note.
All 9 members present of the central bank's board voted for
the change, the NBS said in a statement, adding it expected
interest rates on the financial market to reflect new monetary
policy settings.
The Slovak central bank last cut rates on Nov. 11, also at a
non-monetary meeting and matching a 50 basis point ECB move.
The NBS had already cut by half a percentage point at a
regular end-month monetary meeting in October, saying favourable
commodity prices and the outlook for weaker domestic and foreign
demand allowed it to relax policy without boosting inflation.
SLOWING INFLATION, EASING GROWTH
Slovak inflation is expected to slow by the end of 2008,
from an annual 4.2 percent in October, and the NBS last week cut
its forecast for average inflation in 2009 to 2.7 percent, from
a previously expected 3.4 percent.
Slovakia, the first of the four ex-communist EU members in
central Europe to adopt the euro, has been spared a direct hit
on its banks from the global financial crisis.
But like its regional peers Hungary, Czech Republic and
Poland, Slovakia depends heavily on exports to the West and
weaker demand for its goods will cut economic growth this year
and in 2009.
Central banks in the region have been easing monetary
policy, following moves in major economies.
Hungary surprised markets with a 50 basis point cut to 10.5
percent on Monday after inflation fell faster than expected, and
Poland is also expected to cut rates in December.
Slovak rates may fall further soon after it enters the euro
zone. The latest Reuters poll of economists [] shows the
ECB cutting to 1.5 percent by mid-2009.
Lower rates could support the Slovak economy, which the
government expects to slow to a 4.6 percent growth rate in 2009
from 7.0 percent estimated for this year. Many analysts,
however, expect a sharper downturn.
(Reporting by Peter Laca; Editing by Victoria Main/Ruth
Pitchford)
