(Adds crown reaction, analyst comment)
By Peter Laca
BRATISLAVA, Jan 24 (Reuters) - The Slovak central bank chief
said on Thursday the crown's conversion rate to the euro should
reflect fundamentals, boosting the currency as analysts took the
comments to mean the switchover level would be strong.
Slovakia wants to adopt the euro in 2009 as the first
ex-Communist country with a floating exchange rate and it
expects the conversion rate to be set in June or July if it is
judged ready to join the single currency zone.
"In principle, what is sought for is the real equilibrium
rate which means an exchange rate that will not fundamentally
change the conditions in the economy," Sramko told reporters on
sidelines of an economic seminar.
The central bank chief, who had previously been silent on
the subject, declined to speculate where the conversion rate may
be set.
But he said global turbulence, which has knocked the crown
lower in the past few weeks, may move the actual market rate
from the equilibrium level.
"If the crisis deepens, then the gap between the equilibrium
and the market levels may widen," he said.
The crown has been trading on the strong side of its central
parity within the pre-euro ERM-2 exchange rate band, but it had
lost 1.9 percent to the euro <EURSKK=> in the past two weeks
amid turmoil on global financial markets.
The crown jumped as much as 0.9 percent after Sramko's
comments as the market viewed them as a signal the NBS may want
to see a stronger currency before the euro entry level talks.
"The crown has recently moved in a wide range because the
pool of options before the (conversion rate) fixing was very
wide," one foreign bank dealer in Bratislava said.
"The market sees the comments as removing a large part of
uncertainty, and supporting the view that the fixing rate will
be stronger," the dealer added.
The unit was at 33.635 per euro <EURSKK=> as of 1210 GMT,
compared with 33.800 before Sramko's remarks and with 33.815
late on Wednesday.
ANT-INFLATION AID
The market believes the euro switchover rate would be
stronger than the current ERM-2 parity of 35.4424 per euro,
which should help to contain future inflation pressures.
Slovakia revalued the ERM-2 parity last March to reflect
strengthening fundamentals of the fast growing economy.
Market watchers have speculated another parity adjustment to
stronger levels might be in the pipeline, and that the new level
would then serve as the actual conversion rate.
"If Slovakia is allowed to adopt the euro, which is still
the main scenario, the conversion rate will be probably stronger
than the current parity to prevent fast inflation rise after
euro adoption," said JP Morgan economist, Miroslav Plojhar.
"They will probably take a six-month average, which would
put the rate at around 33.500. There does not have to be another
revaluation of the parity, but only setting the conversion rate
in the summer," he said.
Sramko also said crown's recent volatility and global market
turmoil added to arguments supporting early euro adoption.
"The euro will give us a protecting umbrella... Crown moves,
at present, still largely depend on global markets," he said.
(Additional reporting by Martin Dokoupil and Martin Santa)
