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FOREX MARKETS

Last 1998 T-bill auction yields 16.9%

Eastern European currencies did not experience any sharp moves during mid-December. The Slovak crown moved between 21.580 and 21.700 against the German mark. Although crown trading was mainly focused on German mark developments, it was affected at some points by dollar/mark movements in international currency markets.
Money market interest rates showed a slight uptrend in the short-end yield curve, as the second December period of the minimum reserve requirements started. As the holidays at the end of the year approached, the central bank organised two 28-day refinancing repo-tenders, where the commercial banks got 28-day funds at yields of between 8.93 and 14.02%.

Eastern European currencies did not experience any sharp moves during mid-December. The Slovak crown moved between 21.580 and 21.700 against the German mark. Although crown trading was mainly focused on German mark developments, it was affected at some points by dollar/mark movements in international currency markets.

Money market interest rates showed a slight uptrend in the short-end yield curve, as the second December period of the minimum reserve requirements started. As the holidays at the end of the year approached, the central bank organised two 28-day refinancing repo-tenders, where the commercial banks got 28-day funds at yields of between 8.93 and 14.02%.

The average yield in the December 17 91-day T-bill auction, the last scheduled auction for 1998, was 16.872%, up slightly from the previous week's 16.611. The maximum accepted yield was surprisingly high and reached 18.43%. This affected the yield curve and the interest rates for tenures between overnight and two month funds moved higher at least by one percent.

The central bank 1999 monetary program, expected to be delivered on December 18, should set the outlook for next year's development. However, the central bank refused an early linkage of the SKK to the euro, although in the long term a stable rate against the euro is the main policy. The central bank will link next year's goals to inflation, but declined to set a target range for the crown's exchange rate because of imbalances in the overall economy.

Despite the depreciation of the crown after its flotation, inflation at the end of the year will probably fall within the original planned 5.6-5.9% range. M2 growth is expected to be around 5% at the end of 1998, and according to NBS officials there exists room for further declines in interest rates. The Slovak economy's growth in the third quarter of 1998 slowed slightly, with most analysts saying the figures signalled tougher times ahead. The government's 1999 inflation and budget deficit plans will be hard to meet, but the market considers these plans as steps in the right direction.

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