AFTER reaching record values in mid-April, the Slovak crown fell back slightly against its euro benchmark as the National Bank of Slovakia (NBS) decided to leave key interest rates unchanged. However, positive trade figures from February and March have analysts expecting further currency growth, but wary of possible intervention by the NBS.
Slovakia's currency touched a historic high of Sk40.82 to the euro on April 16, prompting a verbal intervention by the NBS. The central bank has already intervened several times in recent months against what it sees as excessive strengthening that does not reflect underlying economic fundamentals.
Trading remained brisk in late April, however, on speculation that the NBS would cut interbank rates, and the crown reached Sk40.84 on April 25. On April 29, however, the bank decided to leave rates unchanged, with the two-week repo rate at 6.5 percent and overnight rates for refinancing and sterilisation at 8.0 percent and 5.0 percent, respectively.
Interbank interest rates in Slovakia have remained unchanged since November 2002, when the NBS introduced a cut of 1.5 percentage points across the board in response to the crown's strengthening.
"After the decision of the NBS Banking Board was announced, the rate firmed to Sk40.9 to the euro, at which point foreign banks started buying free domestic currency," said Tatra banka currency dealer Bibiana Valachová.
According to Slovakia's Statistics Office, foreign trade figures for February and March have shown increasing foreign demand with a resulting positive impact on Slovakia's trade balance.
Slovakia's trade deficit was reported at Sk3.6 billion (€88 million) for March, less than half of the deficit from March 2002. The balance of trade for the first three months of the year showed a deficit of Sk7 billion (€170 million), compared to Sk19 billion (€463 million) for the same period in 2002.
While analysts welcome the improving trade figures, they have also cautioned that possible NBS intervention in currency markets and Slovakia's state budget deficit should keep the exchange rate in check.
"On the one hand, there is room [for growth] from the point of view of improving foreign trade, but on the other there are still significant threats, especially from inflationary pressures and the possibility of a worsening [situation] in public finance, which in the last few weeks has been shown as a real possibility," said Unibanka analyst Viliam Pätoprstý.
On May 2, the Slovak crown stood at Sk40.926 to the euro and Sk36.799 per US dollar.
5. May 2003 at 0:00 | Dewey Smolka