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Slovakia revalued its central parity to EUR/SKK 30.1260
Thu, May 29 2008, 10:47 GMT
by KBC Market Research Desk
Overnight, the central parity of the Slovak koruna has been revalued to EUR/SKK 30.1260 from the previous level of 35.4424 set in March 2007. This implies new band limits of 34.6449 and 25.6071. The new rate was set exactly at the level of the previous lower rate of the fluctuation band.
The European Commission announced that “at the request of the Slovak authorities, the ministers of the euro area member states of the European community, the ECB and the ministers and the central bank governors of Denmark, Estonia, Latvia, Lithuania and Slovakia have decided to adapt the central rate of the SKK.” The statement adds that the revaluation is justified by ongoing improvements in underlying fundamentals and that it will support the authorities in maintaining the macroeconomic stability.
So, a long expected step has been taken. Slovakia, as the first country ever, revalues its central parity for the second time in its obligatory 2-year stay in the EMU anti-chambre, the European Rate Mechanism. Analysts, including us, have been speculating about this step for a longer time and so yesterday’s decision did not take the markets by a big surprise. In Wednesday’s trading, the Slovak koruna strongly firmed (by 1.5%) and hit a new-all time high of EUR/SKK 30.65, a level dangerously close to the strong edge of the old fluctuation band. The revaluation had become only a question of time. Interestingly, the new parity was set below the level at which EUR/SKK traded yesterday which suggests that indeed authorities were looking for a stronger conversion rate.
The main question now is if the new parity will also serve as the ultimate conversion rate. The final decision will be set at the ECOFIN meeting on July 8. We believe that the official conversion rate will be identical or very close to the new central parity level.
The Slovak deputy finance minister said this morning that they discussed with EU officials only the new parity, not the conversion rate. In the past, however, countries entered the euro zone at the central parity rate. There is no firm rule saying that the conversion rate has to be fixed at the central parity rate, but although in the case of Slovakia some precedents were made (and the 2nd revaluation is a good example), we do not think there will be another revaluation in the remaining time until the ECOFIN meeting.
The Slovak koruna depreciated slightly after the opening, reaching EUR/SKK 30.35, but returned quite quickly back to 30.25 where is also trading at the moment. Most likely scenario in upcoming days is that investors who are long SKK will start to take profits on their positions.
Published on Thu, May 29 2008, 10:57 GMT
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