Slovak Central Bank to Keep Key Rate Unchanged, Survey Shows
The Slovak central bank will leave its key interest rate unchanged for a 13th consecutive month as it tries to stifle inflation by delaying a rate cut, a survey of economists showed.
The Bratislava, Slovakia-based Narodna Banka Slovenska will keep the two-week repurchase rate at 4.25 percent at a board meeting on May 27, according to all 16 economists surveyed by Bloomberg. The board meeting starts at 9 a.m. local time and the bank may announce a decision by noon.
Slovakia on May 7 received approval from the European Commission to switch to the euro from January, leaving the Slovak central bank with a need to align borrowing costs with the 4 percent benchmark rate in the euro region. Still, policy makers will delay cutting rates fearing the move would stoke inflation in one of the European Union's fastest growing economies.
“The economy has been growing slightly above its potential,'' said Viliam Patoprsty, an economist at Unicredit Bank in Bratislava. “The central bank will wait until the last minute before cutting the rate to the euro-region's level.''
Patoprsty said rate setters may wait until the fourth quarter to trim the benchmark rate a quarter percentage point.
Below Ceiling
Rising food and energy prices pushed the inflation rate to a 16-month high of 3.7 percent in April. Still, average price growth didn't exceed the EU's ceiling for euro adoption and the European Commission forecasts it will remain below the limit throughout next year.
To qualify for the switchover, applicant countries must keep their 12-month average annual inflation rates within 1.5 percentage points of the average of the three EU nations with the slowest price growth faxless payday loans. They also must convince the EU that the drop in inflation is sustainable.
Slovakia's 12-month average inflation rate will probably rise to 3.8 percent by December, still below the expected 4.1 percent euro-adoption ceiling for that month, according to the commission's forecast released on April 29. In 2009, the average rate will fall to 3.2 percent, two-tenths of a percentage point below the projected limit.
The economy will probably expand 7.4 percent this year, slowing from 10.4 percent in 2007 when it was boosted by stockpiling of cigarettes by distributors seeking to avoid the January increase in excise taxes. Gross domestic product grew 8.7 percent in the first quarter, the second-fastest pace in the EU after Luxembourg.
Koruna Speculation
The strengthening of the koruna fueled by speculation that Slovakia will switch currencies at a level stronger than the market rate is helping to reduce inflation, economists said.
The koruna was trading at 31.138 against the euro on May 26, down from the previous close of 31.093. The currency rose to a record 31.01 against the euro on May 23.
The koruna has gained more than 23 percent since it was pegged to the euro in November 2005 in the exchange-rate mechanism, a system designed to test the stability of currencies before the euro adoption.
Filed under: money by Finance Boss