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Analysts: Conversion rate will not threaten Slovak economy

The conversion rate of the Slovak crown to the euro that EU finance ministers set at the level of the central parity is no surprise, according to analysts, and should not present a threat to Slovakia's economy or export-oriented sectors.

The conversion rate of the Slovak crown to the euro that EU finance ministers set at the level of the central parity is no surprise, according to analysts, and should not present a threat to Slovakia's economy or export-oriented sectors.

Poštová Banka analyst Eva Sarazová said that since the shift in the central parity to 30.126 SKK/EUR in late May, this level was considered the most likely for the fixation of the conversion rate of the Slovak crown. A stronger conversion rate means higher wages, pensions and savings, whether in bank accounts or in cash. A strong conversion rate will soften the effect of the country's need to catch up with prices in Eurozone countries, she explained. The conversion rate is stronger than the market expected a few months ago, the SITA newswire wrote.

A stronger conversion rate should please not only the public but investors holding assets denominated in crowns. Now that the conversion rate has been set, global rating agencies could upgrade the rating of Slovak government liabilities, thinks Volksbank analyst Vladimír Vano. The new currency could also help stabilise Slovakia's economic environment. According to Debora Revoltella, a senior economist with the UniCredit Group for Central and Eastern European countries, the new currency will eliminate uncertainty related to fluctuations in the exchange rate and simplify cross-border transactions. Accession to the euro club will further stimulate the country to strive for fiscal consolidation, maintain low inflation and boost competition.

Trading in the crown will continue until the end of 2008. Banks will buy and sell euros for crowns to at least ensure payment transactions, Sarazová added. The exchange rate will move closer to the conversion rate to within a few halliers. VÚB Banka analyst Martin Lenko thinks that the real market exchange rate will move in a maximum five-hallier range in both directions from the fixed conversion rate. SITA

Compiled by Zuzana Vilikovská from press reports
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