The Slovak crown failed to find any strong support even after the Ministry of Finance expressed its interest in preventing any further decline of the currency on May 10. The foreign exchange market was caught short of euros when emerging markets plunged on May 12.
Markets were reacting to the increasing political problems in Russia, and the Slovak currency moved to another historic low versus the euro, closing the day at EURSKK 45.480/580. This represents a one percent weakening in one week, which is according to the central bank "standard behaviour for a floating currency." Given the NBS statement, the market did not expected the central bank to intervene on the market. Foreign investors (mostly buyers of SKK during the last month) took a cautious approach because of uncertainty over the outcome of presidential elections and problems in Russia. Local demand for foreign currency remains high.
On the T-bond market, after the low demand in the last month's auctions, the Ministry of Finance decided to reschedule the planned auctions and issued a one-year T-bond instead of the planned two-year on May 12, as they expected higher demand for shorter paper. The ministry attracted bids worth 1.05 billion crowns at the pre-set maximum yield of 15.8%.
The following day's auction of a 28-day T-bill had a clear impact on money market interest rates. The ministry accepted demand up to a 13.999% yield (in the last similar auction the average was 12.206%), after the central bank said that it would no longer allow treasury bill issues into the bank's own portfolio. One-month interest rates moved one percent higher after the results of the auction were released.
The situation on the Slovak market took a dramatic turn after the central bank said it would hold no refinancing repo on May 13. The central bank said later that its decision had been related to developments on the foreign exchange market. The money market reaction was immediate and the whole yield curve moved sharply higher. One-day funds moved above 20% and three months were quoted at 14.5/16.5 in a highly illiquid market. The foreign exchange market experienced some moves, but the EURSKK stabilised at 44.410/500, slightly below its year high of 45.500/600 - the level at which the market had opened on the same day.
17. May 1999 at 0:00 | Roman Petranský