MARKETS

Government repeats stance that will not devalue Sk

Sergej Kozlík, vice-premier in the government and the minister of finance, agreed with the first part of Kabát's statement, but refuted any rumors that the government would devalue the Sk. "The NBS interventions cost us only $300 million, which is about 5% of our foreign exchange reserves," Kozlík said. "There is no more pressure and our currency's development has calmed. We made a decision not to change the fluctuation band."
As of June 2, the banking sector lacked around 15 billion Sk, or some 35 percent of the funds needed to meet its minimum reserves requirements later this month; meanwhile, the NBS said its hard curency reserves had dwindled from 3.452 billion Sk to 3.076 billion Sk in the May 21-28 period, Reuters reported.
One big reason the NBS warded off speculative trading, Kabát said, was through close cooperation with commercial banks.

Sergej Kozlík, vice-premier in the government and the minister of finance, agreed with the first part of Kabát's statement, but refuted any rumors that the government would devalue the Sk. "The NBS interventions cost us only $300 million, which is about 5% of our foreign exchange reserves," Kozlík said. "There is no more pressure and our currency's development has calmed. We made a decision not to change the fluctuation band."

As of June 2, the banking sector lacked around 15 billion Sk, or some 35 percent of the funds needed to meet its minimum reserves requirements later this month; meanwhile, the NBS said its hard curency reserves had dwindled from 3.452 billion Sk to 3.076 billion Sk in the May 21-28 period, Reuters reported.

One big reason the NBS warded off speculative trading, Kabát said, was through close cooperation with commercial banks. "Seeing the situation in the Czech Republic, commercial banks [in Slovakia] and the [Slovak] central bank made a gentlemen's agreement that [the central bank] would not have to use any regulative measures," Kabát said.

According to Kabát, domestic banks stopped quoting crowns to foreign banks, freezing the market. "It's clear that this makes the situation easier for us," the NBS's Jusko told the Národná Obroda daily. "If the banks continue this policy, it is the most rational decision they can make."

At the end of May, the interbank market still operated under internal agreements. That means that foreign players could not use their usual tools: borrow crowns from domestic banks and then convert them to foreign currencies and hope for a devaluation. Ordinarily under that scenario, the difference between the previous and the new exchange rate would bring in more than enough profit to pay back the interest to Slovak banks and still take home plenty.

According to Kabát, what the Sk does next will be determined by how foreign investors react when the NBS lifts its restrictive measures. But he thinks that the Sk will have to at some time give into pressure of the weaker Czech currency. "Trade with the Czech Republic makes up 30% of our foreign trade," Kabát said. "That's why the Czech/Slovak crown exchange rate is so important. Since the Czech crown has devalued, the Slovak crown will not be sustainable in the long-term without devaluation."

However, Jusko said that the situation in the Czech Republic is quite different and that the relationship between two currencies is overrated. "We have made calculations and the interdependency between them is not that big," he said.

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