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Central Bank increases certain key interest rates

The Slovak central bank (NBS) board decided to raise certain key interest rates on July 25. Two-week repo tenders will increase by one half of a percentage point, while overnight refinancing operations will rise by 1 percentage point.

As a result, as of July 26, two-week repo tenders will increase to 4.5 percent, while overnight refinancing operations will rise to 6 percent. Overnight sterilisation operations, however, will remain unchanged at 3 percent, NBS spokesman Igor Barát told news wire TASR.

Earlier this year, NBS already increased key interest rates twice - by 0.5 percentage points each time in February and May due to increasing inflation.

The latest increase may be seen as another attempt to prop up the Slovak koruna as well as a measure to curb inflation.

Since June, NBS has intervened in favour of the koruna three times. The first time was when the 38.55 SKK/EUR threshold was breached. The second intervention came at the end of the month when the koruna was at the 38.48 SKK/EUR level.

In July, the central bank stepped in to defend the koruna when the exchange rate went beyond the 38.70/38.75 SKK/EUR level.

In 2005, NBS adjusted interest rates only once, when it lowered them at the end of February 2005. This was due to developments on the foreign currency market and the rapid appreciation of the Slovak currency. From the second half of March, the koruna's exchange rate was under the influence of currencies in the central European region, mainly the Polish zloty, which was volatile.

By the end of March 2005, the koruna had slumped, and NBS had to defend it by direct sales of the euro when it weakened to 40SKK/EUR. After joining the ERM-2 mechanism in November last year, the Slovak currency was supposed to become less dependant on the development of other currencies in the region. At the moment, the koruna is trading at around Sk38.3 per euro.

Compiled by Spectator staff from press reports
The Slovak Spectator cannot vouch for the accuracy of the information presented in its Flash News postings.

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