The exchange rate rose above 45 Slovak crowns (Sk) to the Euro, but the market remained relatively stable despite Finance Minister Brigita Schmögnerová's call for greater currency control by the central bank.
Crown recovers from fall
The EUR-SKK exchange rate reached new heights on Monday, March 29, when the crown weakened to 45.2 during the day. However, the next day it moved back below 45.00 and then held in a narrow range between 44.80 and 45.05 during the following days.
Market immune to comments
The market did not react to comments by Minister Schmögnerová that the crown depreciation should be stopped because of increasing costs for companies resulting from depreciation. She called on the central bank to manage the currency more actively and opened the question of reconsidering the foreign exchange policy. This sparked speculation about some changes in the future currency regime. However, central bank officials said that they are not planning any changes this year.
Bond auction yields lowered
The Finance Ministry followed its intentions to lower the yields in the auctions of state bonds during past two weeks. In the two-year bond auction organised on Tuesday, March 30, the ministry set the maximum yield at 16.3% and maximum amount they would like to accept at 3 billion Sk. All demand (2.85 billion Sk) was accepted with average yield of 16.29%. Another auction of one-year bonds was also successful, however the demand was still lower then maximum amount that ministry would accept. The maximum yield was set lower again - at 16% and demand reached 2.45 billion Sk, all of which was accepted.
Later, the Slovak central bank said the maximum yield in its two-year state bond auction on April 13 would be 16 percent, however the market expectation was slightly lower.
It seems the ministry is satisfied with the decline in the treasury bond yields for now and that there has been some stabilising at around 16% for some time. According to ministry officials, room for further declines had significantly narrowed and the ministry does not want sharp yield falls as this could have a negative effect on the crown.
The Slovak central bank also said that developments in the public sector did not create the space for significant monetary easing.
Author: Roman Petransky
