Interest rates sharply down after repos

The Slovak crown remained steady in moderate trading within the period from October 28 to November 4. The crown was quoted between 7.5 and 8.8% on the weak side of the former currency basket band.
We saw only a mild weakening of the crown on November 4 from around 7.6% to 8.8, but at the end of the day the crown was quoted at minus 8.2%. Domestic banks and clients moved the crown almost exclusively as foreign activity was still minimal. Spreads remained wide and volumes thin as intraday activity on the market is very low.
Future developments are difficult to predict as the next customer with big volume interest could drive the market either way. Current technical analyses foresee bullish crown development, but the fundamentals remain weak.

The Slovak crown remained steady in moderate trading within the period from October 28 to November 4. The crown was quoted between 7.5 and 8.8% on the weak side of the former currency basket band.

We saw only a mild weakening of the crown on November 4 from around 7.6% to 8.8, but at the end of the day the crown was quoted at minus 8.2%. Domestic banks and clients moved the crown almost exclusively as foreign activity was still minimal. Spreads remained wide and volumes thin as intraday activity on the market is very low.

Future developments are difficult to predict as the next customer with big volume interest could drive the market either way. Current technical analyses foresee bullish crown development, but the fundamentals remain weak.

On the money market, interest rates for all periods fell sharply as the central bank followed with market refinancing through two-week repo tenders (results between 8.8-12.0%) and as only auctions of 28-day T-bills were held during the last two weeks.

On November 5, 6 months deposits were offered at 20.50%, 1 month at 18.00 and the short end of the curve at 11%. This represents a decline of longer tenures by more then 5% in one week.

In the auction of 28-day T-bills, bids worth 3.38 billion Sk were accepted out of a total demand 6.05 billion, with average yields below 19%. Another five auctions of T-bills are scheduled for the rest of the year, all only with 91-day maturity.

We may see another decline in interest rates of longer periods, but the yield curve is expected to stay sharply positive in the near future. Only possible problems in the banking sector could reverse the trend and push the interest rate higher.

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