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MONEY, FOREX MARKETS

Market stable, but uncertainty lingers on

The Slovak money and foreign exchange markets did not show high volatility over the past two weeks, but lingering uncertainty over next year's developments continued to worry market players.
Two events dominated the money market - the fifth and sixth auctions of state T-bills. At the first of these sales on December 3, the Finance Ministry sold 39-week T-bills worth 2.984 billion crowns, not nearly satisfying the surprisingly high overall bid of 7.464 billion crowns.
The average yield dropped to 24.814 percent, while the maximum accepted yield was 25.00 percent. The yield curve of short-term deposits remained unchanged. Overnight deposits were traded on interests between 13 and 16 percent, while one-week funds traded at around 17 percent interest.

The Slovak money and foreign exchange markets did not show high volatility over the past two weeks, but lingering uncertainty over next year's developments continued to worry market players.

Two events dominated the money market - the fifth and sixth auctions of state T-bills. At the first of these sales on December 3, the Finance Ministry sold 39-week T-bills worth 2.984 billion crowns, not nearly satisfying the surprisingly high overall bid of 7.464 billion crowns.

The average yield dropped to 24.814 percent, while the maximum accepted yield was 25.00 percent. The yield curve of short-term deposits remained unchanged. Overnight deposits were traded on interests between 13 and 16 percent, while one-week funds traded at around 17 percent interest.

Deposits with maturities of over one month stayed at above 20 percent, while the longest, six-month maturities hovered at around 24 to 26 percent, supported by yields accepted by the Finance Ministry at the auction.

The Finance Ministry on December 8 finally announced technical procedures for tax payments from yields on state securities, introduced in November. Slovak entities, as well as any indirect pariticipants in T-bill auctions (including foreign investors) must pay by December 12, 1997, a 15-percent tax from yields on state papers issued after November 5.

From now on, yields will be taxed immediately after purchase of state securities in primary auctions. The specification of tax payment procedures, however, had no noticeable effect on the December 10 T-bill auction. The average yield eased further to 24.662 percent while the overall volume of bids remained high, at 5.129 billion crowns, of which the ministry accepted bids totalling 2.251. The maximum accepted yield was 24.85 percent.

Foreign investors showed no interest in Slovak T-bills at the last two auctions. The foreign exchange market showed signs of stabilization after the Slovak crown weakened by some two percent at the end of November. The crown's market index fluctuated between 1.0160 and 1.0200, which means the crown firmed up slightly compared to the end of November.

It seemed that some Slovak banks had been buying hard currency in November in the expectation of higher client interest in converting crowns to hard currencies in December. However, these expectations proved to be wrong. The crown closed at 1.95 percent on the depreciation side of its mark/dollar basket parity. The crown still remains sensitive to developments with the Czech crown.

The money market awaits two auctions of treasury bills before the end of this year. The ministry will offer 40-week T-bills on December 16 and 92-day papers on December 29. Average accepted yields should remain around 24.5 percent.

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