(Adds central bank comments, analysts, market reaction)
By Peter Laca
BRATISLAVA, Oct 28 (Reuters) - The Slovak central bank cut its main interest rate by 50 basis points on Tuesday, aligning benchmark borrowing costs with the euro zone two months before the country joins the single currency bloc in January.
The decision, taken at the monthly monetary policy meeting, brought the key two-week repo rate to 3.75 percent, eliminated the half-point premium over the euro zone benchmark rate created after the coordinated cuts by global central banks on Oct. 8.
Analysts said Slovakia may need to ease its monetary policy further as the market sees more cuts by the European Central Bank (ECB) to avoid deepening of the financial crisis.
National Bank of Slovakia (NBS) governor Ivan Sramko said domestic data have so far not shown a significant economic slowdown, but the bank expects a negative impact on growth in 2009 and this created room for lowering interest rates.
"Aiming to harmonise the interest rates (with ECB), and stabilise the economy in light of the global crisis, the bank Board decided to cut the official interest rate by 0.5 percentage points," Sramko told a news conference.
Sramko also said the central bank did not expect major changes in inflation trends, saying price growth should develop in line with the bank's medium-term prognosis, which sees average EU-norm inflation of 3.4 percent next year.
Prior to the changes, the NBS had held rates steady for 17 months, saying it did not need to adjust monetary policy because inflation trends were mainly driven by factors outside of its influence, such as oil and food costs.
But Slovakia had to cut the main rate at some point before it becomes the 16th member of the euro zone next year, and NBS board members have said earlier the options were a cut all at once or a gradual reduction.
The Slovak crown, which now has a formal conversion rate to the euro for the switchover, did not react to the rate cut. Short-term interbank interest rates moved down, with the one-month rate easing by some 40 basis points to 3.50 percent, traders said.
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The European Central Bank's interest rate now stands at 3.75 percent following the coordinated rate cuts from October.
The markets have priced in further policy easing as recession hits western Europe, which means the Slovak central bank may need to lower its rates again if the ECB makes further cuts this year.
ECB President Jean-Claude Trichet said on Monday a further rate cut was possible at the Nov. 6 meeting.
"We expect the ECB to cut rates by another 50bps to 3.25 percent by the end of the year, which implies that Slovakian rates must fall by another 50bps by January 1st," analysts from Capital Economics said in a note.
"While timing remains uncertain, we have pencilled in another 50 bps cut (in Slovakia) in November," they added. (Reporting by Peter Laca, editing by Stephen Nisbet)