Latest development of inflation as well as of Slovakia's economy is in line with expectations of the National Bank of Slovakia (NBS). There was thus no reason to change interest rates, said NBS Governor Ivan Sramko at Tuesday's press conference dedicated to the decision of the NBS Bank Board to maintain current level of its key interest rates. In his words, the NBS Bank Board found that the growth of consumer prices is still influenced mainly by cost factors. Similarly as in previous months, the central bank points to a possible negative development of wages. It is important that this fact would not provide an impulse for unbalanced wage increase. With regard to further growth of employment on slower gross domestic product (GDP) growth, a disproportion between growth of wages and increase in productivity could arise. The European Central Bank (ECB) points to the same risks, Mr. Sramko added.
Prevalence of cost factors in price growth will continue in the upcoming months, while the central bank considers the situation on the market of energy and farm commodity prices favorable. Prices of goods and services grew, reflecting the current prices of energy and food. Over the next few months, food prices are to be influenced by increased excise tax on tobacco products. On the other hand, the base effect of last year's price increase in farm commodities should show. This is why inflation growth should not accelerate significantly in a y/y comparison, according to Mr. Sramko. The GDP structure will be important for future inflation development. Slowing growth dynamics of retail sales posted in individual months of Q2 2008 might imply a non-accelerating rate of final consumption. The current development of foreign trade, the deficit of which is caused by, among other factors, high prices of raw materials, does not differ from NBS projections significantly.
In line with analysts' expectations, the National Bank of Slovakia (NBS) again left key interest rates in Slovakia unchanged in August. Following Tuesday's meeting of the NBS Bank Board, the two-week sterilization repo-rate remains at 4.25 percent p.a. Simultaneously, the NBS left the one-day sterilization repo rate unchanged at 2.25 percent p.a. and the one-day refinancing rate at 5.75 percent p.a. Analysts are convinced that room for independent monetary policy of the Slovak central bank will be minimal, with regard to the upcoming euro adoption as Slovakia's currency. The central bank should further follow interest rates in the euro area. The key rate of the ECB equals the key rate of the NBS, representing 4.25 percent p.a. The ECB raised interest rates from 4 to 4.25 percent p.a. on July 4, 2008 owing to accelerating inflation. The ECB base rate thus achieved the level of the NBS key rate, which has been stable on a long-term basis.
The central bank has kept interest rates on hold since April of last year. The NBS last decided to change interest rates in March and April, 2007, successively reducing them by 25 basis points. In 2006, the NBS changed key interest rates four times. The last change in 2006 came in September, when the central bank increased key interest rates by 25 basis points.