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Slovakia: Monthly forecast
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Food and fuels have likely continued to weigh on inflation in June
Mon, Jul 7 2008, 15:18 GMT
by Mária Valachyová
Erste Bank der oesterreichischen Sparkassen AG
Price development and real economy
Food and fuels have likely continued to weigh on inflation also in June. We expect consumer price index to increase by 0.2% on the month, which should help to bring annual inflation slightly down, to 4.5% from 4.6% in May. Industrial production should continue growing at a solid pace in May; we in line with the market expect growth at around 8% y/y, while foreign trade is expected to narrow its deficit.
Implications for koruna and monetary policy
On Tuesday, European authorities will approve and made public the final SKK/EUR conversion rate. Last week, press agencies brought information that the European Commission will propose the current ERM-2 central parity (i.e. 30.1260 SKK/EUR) as the final conversion rate. Should this happen, the approval of the conversion rate at the parity is almost certain. Until last week, we considered the round figure of 30.0 SKK/EUR as likely alternative (the rounded conversion rate would be better for practical reasons). However, after last week news, the ERM-2 central parity level looks more probable.
On the monetary policy front, no change in the key Slovak interest rate is expected in July. The ECB hiked its interest rates to 4.25%, which is also the level of the Slovak key 2W repo rate. Before January 2009, the NBS will narrow O/N rate corridor to standard ECBs 100bp, possibly already in July (we do not expect this to have a significant impact on money market). Until the year-end, the ECB is (according to our Erste Bank colleges) expected to keep rates stable. However, should the ECB change the interest rates, the NBS will follow the suit.
Published on Mon, Jul 7 2008, 15:22 GMT
Archive
- Food and fuels have likely continued to weigh on inflation in June
Published On Mon, Jul 7 2008, 15:18 GMT - March 2008
Published On Fri, Mar 7 2008, 09:27 GMT - Changes over previous version
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Erste Bank
http://global.treasury.erstebank.com | Rainer.Singer@erstebank.at
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