The Slovak crown experienced calm development from November 19 to 26 as the market floated between 10.6 and 11.6% on the weak side of the former basket band. The index was insensitive to dollar-mark moves, as the mark-slovak rate often did not react to dollar-mark volatile development.
It is unlikely that the crown will become sensitive to the majors anytime soon, as the market will begin to trade DEM-SKK (EURO-SKK from January) as soon as the central bank changes FX position limits for commercial banks.
The next currency regime, however, is still unclear, as central bank representatives said that a new anchor for the Slovak economy would have to be found, and did not rule out that this anchor would be linked to the currency.
The crown was floated on October 1st after depreciation pressure caused by weak Slovak fundamentals, and has remained volatile and vulnerable during the past weeks.
Big corporate buying, rumoured on the market to be likely in the near future, could move the crown to stronger levels during the next week. However, the strengthening could be only short term as the latest foreign trade data showed that the 1998 trade deficit had risen to 65.883 billion crowns in \October, compared to 55.040 in September.
Rates continue to fall asNBS feeds liquidity to market
On the money market, the 91-day T-bill auction on November 15 was expected to be crucial for upcoming interest rate developments.
The market has calmed down since the flotation of the crown, but we can see now trading in all maturities. Declining interest rates for longer term money were seen as having hit bottom, but some dealers saw room for further declines.
The banking sector stood in surplus as the central bank has been feeding liquidity through 14-day repo-tenders.
Interest rates hovered at a record low on November 24. Overnight rates stood at 10.15/11.25 bid/offer, one month rates were at 12.5/13.5 and three months at 15.0/16.0.
Next day, the average yield in a 91-day Slovak T-bill auction hit 16.716% after 18.938% in the last similar auction one week before. Minimum yield was 15.8 and maximum yield was 16.88%.
Bids worth 3.035 billion were accepted out of total demand 8.44 billion. These yields did not surprise the market, compared to the previous auction where we saw yields lower than expected.
This confirmed the widespread market view that the long-end of the yield curve has probably hit bottom, and that rates will stabilise at these levels during the coming weeks.