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NBS again intervenes to weaken crown

The central bank again intervened on the forex market yesterday, buying eruo and weakening the crown 30 basis points to 41.9 against its euro reference currency. However, dealers said the bank could not keep propping up the crown for long, as the strength of market pressures pushing it higher was simply too great.

Among the factors driving the new crown strength are confidence over Slovakia’s new centre-right government and its chances of joining Nato and the EU, as well as an interest differential, whereby commercial banks depositing crowns with the central bank earn 8 per cent interest, while the central bank earns only 3.3 per cent on its euro reserves.

Unless the interest differential is reduced., the national bank by the end of the year could lose Sk150 million ($3.75 million).

Slovakia’s strengthening currency this year has caused the central bank losses, on paper, of Sk17 billion, even though the 2002 state budget plan calls for it to make a profit of Sk4.7 billion. The loss is so far only theoretical, but would have to be covered if Slovakia entered the European Monetary Union.

Dealers have speculated that the central bank will defend the crown until the next piece of positive economic or political news – potentially an invitation to join Nato at the end of this month – and then release the crown and let market forces determine its final strength.

Compiled by Tom Nicholson from press reports.
The Slovak Spectator cannot vouch for the accuracy of the information presented in its Flash News postings.

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