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Central bank raises rates

THE NATIONAL Bank of Slovakia raised key interest rates by 25 basis points to 4.75 percent on September 26 over concerns regarding inflation and the fiscal policy of the socialist Robert Fico cabinet.

The decision surprised market watchers, who had not expected a rise for another month, and pushed the Slovak currency higher to SKK37.39/EUR.

The bank has now raised rates four times this year from 3 percent in January amid concern that with inflation currently at 4.9 percent, Slovakia may not fulfill the Maastricht criteria for adopting the single European currency on schedule in 2009.

However, central bank governor Ivan Šramko has also criticized the government's draft budget for 2007 as "insufficiently restrictive", and said a proposal to reduce the 19 percent VAT rate on drugs and medical aids could endanger the euro adoption plan.

"The reason for the bank's decision could be uncertainty regarding fiscal discipline, which could be seen as a risk," said VÚB bank economist Zdenko Štefanides for the Sme daily.

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