Jozef Magula and the NBS bank board he sits on had to do more than raise a finger to save the crown from a frenzied spree in which foreign banks dumped it for hard currency.
In reaction, the National Bank of Slovakia (NBS) intervened on April 29 to save Slovak banks' hemorrhaging foreign exchange liquidity by buying Slovak crowns worth about $100 million.
František Szulényi, the head of the National Bank's department of hard currency assets administration, said the primary reason for the currency market's panic attack was foreign investors' fear of the "deteriorating effect" on the Slovak crown caused by NBS Governor Vladimír Masár's April 24 announcement that the NBS may loosen its monetary policy.
The second reason was anxiety among foreign banks that the import deposit requirement recently established in both countries would weaken the crown on both financial markets.
Szulényi said the NBS stabilized the exchange rate on April 29 at 0.6 percent above the level of basket of hard currencies the Slovak crown is pegged to. That caused the crown to appreciate compared to its Czech counterpart, which foreign banks were also in a hurry to get rid of.
"There was consensus on the market that Slovak crowns would depreciate if we [loosened the monetary policy]," Szulényi said. "But we fixed the rate so that it would remain stable. In fact, the Slovak crown appreciated by 1.2 or 1.5 percent after the fix."
Czech and Slovak central bank officials denied that each country's trade deficit and import deposit requirement would establish the basis for devaluing either Slovak or Czech crown. "From the beginning of this year," said ČSOB's forex chief dealer, Robert Hakzser, "the Czech crown depreciated 9 percent, so there is no reason to devalue it further administratively."
"Even if [the Czech crown] would be devalued again," said Peter Koprna, forex chief dealer of Slovenská Sporiteľna, "the Slovak crown would be devalued to a lesser degree because of more positive macro-economic indicators here." He added that it would be surprising for any country to devalue its currency the year before elections.
A trader at one Slovak bank who requested anonymity said there is no danger of devaluation. "It's not a serious problem, only normal trading," the source said, adding, "There is no problem as long as the currency stays within a stable fluctuation margin...I think we can expect such [speculatory moves] in the future."
Jozef Cimra, a proprietary trader for ING Barings Bank in Bratislava, said the panic stemmed from the ripple effect of bearish investment practices in the Czech Republic. "All these pressures on the Slovak and Czech currency markets are caused by the bearish mood of foreign investors. . . Also, it's no secret that the Czech and Slovak crown are clearly linked. If the Czech crown devaluates, the Slovak crown will do so too." Because both markets are small, Cimra added, devaluation of either currency "would have a big impact" on the other.
8. May 1997 at 0:00 | Tom Reynolds