Slovak central bank slashes inflation outlook

Tue Mar 25, 2014 10:32am EDT

Related Topics

* Forecasts 0.2 pct inflation in 2014 vs 0.6 pct previously

* Prices fell in Feb, but deflation not seen

* Bank lifts 2014 growth forecast a tad to 2.4 pct

BRATISLAVA, March 25 (Reuters) - Slovakia's central bank slashed its inflation outlook on Tuesday after prices fell last month, predicting average inflation this year would be barely above zero.

Like some other euro zone members, Slovakia has seen inflation pressures evaporate and prices dipped 0.1 percent year-on-year in February, as measured by both domestic and EU-harmonised inflation.

In its quarterly outlook, the bank cut its full-year inflation forecast to 0.2 percent from a previous 0.6 percent.

It said that the probability of deflation, defined as a price fall lasting one year, was 20-25 percent between the second quarter of this year and the first quarter of 2015.

The central bank raised its economic growth forecast slightly for this year, by 0.1 percentage point to 2.4 percent, and kept its 2015 forecast at 3.3 percent.

Deflation would be bad for the economy as it would deter consumer spending as people waited for prices to fall further.

Slovakia joined the euro zone in 2009. Last month, it became the third country in the currency bloc to record a year-on-year price fall, adding to debate over whether the European Central Bank (ECB) needs to take additional steps to loosen monetary policy and spur inflation.

Germany's Bundesbank said on Tuesday that the ECB could buy loans and other assets from banks to lift the euro zone economy, marking a radical softening of its stance on the contested policy.

Jozef Makuch, Slovakia's central bank head and an ECB governing council member, said on Tuesday that deflation risks in the euro zone had risen and a number of European Central Bank governing council members were prepared to take decisive steps if needed. (Reporting by Robert Muller, writing by Jan Lopatka; Editing by Susan Fenton)

FILED UNDER: