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Deposits gaining favour as rates rise

THE STEADY decline in interest rates on bank deposits since 2000 reached its nadir last year due to record low key interest rates at the central bank. Mutual funds offering higher yields than term deposits took advantage of the situation, as bank clients continued to turn to other forms of investment.

THE STEADY decline in interest rates on bank deposits since 2000 reached its nadir last year due to record low key interest rates at the central bank. Mutual funds offering higher yields than term deposits took advantage of the situation, as bank clients continued to turn to other forms of investment.

However, with the rise in key interest rates by 150 basis points this year, yields on bank deposits also began to increase, bringing savers back to retail outlets to the detriment of mutual funds, the Hospodárske Noviny daily wrote.

VÚB bank analyst Marta Horecká forecasts that the trend will continue in 2007, and that the share of mutual funds on overall savings products will continue to fall.

Currently, some banks are offering a four percent annual interest rate on term deposit accounts, compared 0.5 percent on current account deposits. The gap between the interest rates on term deposit and current accounts is expected to widen significantly in early 2007.

The National Bank of Slovakia (NBS) has said it is concerned with inflation, which reached 5.1 percent y-o-y in August. In order to enter the Eurozone as planned in 2009, Slovakia must fulfill strict inflation criteria.

As a result, the central bank is trying to make savings more attractive and to restrain household consumption, which remains the main driver of the country's 6.5 percent economic growth.


- From press reports

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