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The central bank kept interest rates unchanged at todays meeting, meeting widespread expectations. The 2W repo rate remains at 4.25%, while the O/N rates were kept at 2.25%/5.75%. Slovakia recently faced acceleration of inflation, which speaks in favour of cautiousness and the central bank might express its concerns later in todays comments. However, the primary reason of inflation surge was the food price growth and the central bank does not have tools to influence the phenomenon, which is common for all European countries. At the same time, we have not seen any significant acceleration of demand pressures. Comments of CB officials will be published later in the afternoon.
Outlook: Our research colleagues within Erste Bank have recently changed their forecasts for the ECB rate. Instead of previous hike, we now expect ECB rates to stay on hold during this and next year (with some upwards risk in the second half of 2008), which also matches the prevailing market view. That would mean the key interest rate in the Eurozone will be at 4.0% at the beginning of 2009, when Slovakias euro adoption is expected. Since the current NBS rate is 4.25%, one more 25bp cut by Slovak central bank will be necessary until the two base rates meet. We expect the central bank to deliver this final cut in 2Q08, once Slovakias euro adoption is secured. The same timing also applies to when the currently asymmetric corridor of O/N rates around the base rate (2.25/5.75%) could be changed to the ECBs standard of 100bp on both sides.
No reaction to the central banks decision was seen at the FX market. As a side note, the koruna finishes its second year in ERM-2 today, which means that Slovakia now also meets the exchange rate criterion necessary for euro adoption.
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Slovakia: As expected, interest rates stay put after Bank Board meeting
Tue, Nov 27 2007, 11:50 GMT
by Michal Musâk
Erste Bank der oesterreichischen Sparkassen AG
The central bank kept interest rates unchanged at todays meeting, meeting widespread expectations. The 2W repo rate remains at 4.25%, while the O/N rates were kept at 2.25%/5.75%. Slovakia recently faced acceleration of inflation, which speaks in favour of cautiousness and the central bank might express its concerns later in todays comments. However, the primary reason of inflation surge was the food price growth and the central bank does not have tools to influence the phenomenon, which is common for all European countries. At the same time, we have not seen any significant acceleration of demand pressures. Comments of CB officials will be published later in the afternoon.
Outlook: Our research colleagues within Erste Bank have recently changed their forecasts for the ECB rate. Instead of previous hike, we now expect ECB rates to stay on hold during this and next year (with some upwards risk in the second half of 2008), which also matches the prevailing market view. That would mean the key interest rate in the Eurozone will be at 4.0% at the beginning of 2009, when Slovakias euro adoption is expected. Since the current NBS rate is 4.25%, one more 25bp cut by Slovak central bank will be necessary until the two base rates meet. We expect the central bank to deliver this final cut in 2Q08, once Slovakias euro adoption is secured. The same timing also applies to when the currently asymmetric corridor of O/N rates around the base rate (2.25/5.75%) could be changed to the ECBs standard of 100bp on both sides.
No reaction to the central banks decision was seen at the FX market. As a side note, the koruna finishes its second year in ERM-2 today, which means that Slovakia now also meets the exchange rate criterion necessary for euro adoption.
Published on Tue, Nov 27 2007, 14:44 GMT
Erste Bank
http://global.treasury.erstebank.com | Rainer.Singer@erstebank.at
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Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
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