The Slovak crown eased again on January 15, following regional trends, as Brazil's financial problems cast a cloud over emerging markets worldwide. The crown tested levels between 42.800/900 against the Euro, but over the next few days the instability caused by the Brazilian devaluation began to dissipate.
In the third week of January, the market was very quiet and the crown fluctuated in narrow range between 42.650/750 against the Euro. The market did not expect any sharp movement in the short term, but there is a clear potential for a weakening of the crown during the next few months.
On the money market, the rapid easing of the yield curve in early January came to an end during the Brazilian crisis, and the yield curve has since again flattened. On January 20, offered interest rates for all quoted maturities hovered between 17.0 and 17.5 %. The banking sector remained in sharp deficit from the outset of this period of reserve requirements. Two refinancing repo tenders organised on January 18 and 19 were heavily oversubscribed. In the 14-day repo tender the central bank accepted bids with average yield of 14.34%, while the 28-day auction attracted an average yield of 14.14%.
That week's 1-year T-bond auction brought a yield of 18.5%, as the ministry accepted only 0.31 billion Slovak crowns out of total demand of 3.89 billion. Similarly, no bids were accepted in the last 28-day T-bill auction organised on January 20. The central bank declared that the current levels of interest rates are too high. The market is therefore expecting the NBS to continue to add liquidity to the banking sector in the near term and also to try to push down yields in auctions of government paper.
The market is also awaiting the announcement of the government's economic package. A more clear idea of the government'a plans may prove crucial for the medium-term fate of local markets.
