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Interest rate cut would not favour banks, Central Bank Governor says

It would not make sense for Slovakia to immediately follow the coordinated interest rate cut undertaken by the U.S. Federal Reserve, the European Central Bank and four other central banks on October 8.

It would not make sense for Slovakia to immediately follow the coordinated interest rate cut undertaken by the U.S. Federal Reserve, the European Central Bank and four other central banks on October 8.

Ivan Šramko, governor of the National Bank of Slovakia (NBS), speaking at a press conference held by the Slovak Association of Corporate Finance Officers on October 9, said that the position of Slovakia's economy is different. Banks on ailing markets are grappling with scarcity of liquidity, which central banks are replenishing through various measures, but Slovakia is facing the opposite development, he said. The central bank is sterilising money, which means that Slovakia needs no extraordinary measures because it has plenty of liquidity available. An overly rapid reaction by the central bank would be to the detriment of banks.

Šramko, however, admitted that the central bank was going to deal with the interest rate cut. It will have to harmonize interest rates with the levels set by the European Central Bank (ECB) upon Slovakia's entry to the eurozone. The central bank sees no reason for an extraordinary decision of the NBS Bank Board in this respect but the board will certainly touch upon this issue at its regular sessions.

The key interest rate in Slovakia and, at the same time, the two-week sterilization rate, remains at 4.25 percent p.a. The ECB's key interest rate, which is simultaneously the key refinancing rate, dropped 50 basis points on October 8 to 3.75 percent. The ECB's decision to join the coordinated interest rate cut constituted a step that supports economic growth but increases inflationary pressures through reducing prices of funds. SITA

Compiled by Zuzana Vilikovská from press reports
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