(Adds details, Fico quotes, background)
LUXEMBOURG, Feb 28 (Reuters) - Slovakia's Finance Minister
Jan Pociatek said on Thursday he was not ruling out another
"revaluation" of the country's crown currency, sending the unit
to record highs against the euro.
The crown is now in the Exchange Rate Mechanism 2, the
stability test for joining the euro zone, and floats against the
euro in a band of +/- 15 percent on either side of a central
parity rate. A revaluation would mean a stronger central parity.
Asked by reporters in Luxembourg whether he was considering
such a move and whether it would make sense, Pociatek said:
"It is difficult to comment on this issue in detail, but the
possibility of revaluation cannot be excluded."
The Slovak crown <EURSKK=> rose to a record high of
32.525/614 against the euro at 1556 GMT from 32.735 before.
Slovakia hopes to become the 16th member of the euro area
from 2009. It needs to meet European Union criteria -- a stable
exchange rate, low interest rates and inflation, and debt and
budget deficit levels below EU thresholds.
While EU rules do not allow for a currency to be devalued
while in the ERM-2, revaluation is not a problem.
Slovakia already revalued the ERM-2 parity peg by 8.5
percent to 35.4424 per euro in March 2007 because of upward
pressure on the currency from years of fast GDP growth, large
productivity gains and strong foreign investment.
Greece and Ireland also revalued ahead of euro adoption, but
by much less than Slovakia has done.
REVALUATION TO FIGHT INFLATION
Slovakia's strong growth creates inflationary pressures,
which can now be offset to some extent by the rise in the
exchange rate of the crown within the band.
The European Commission is concerned however, that once the
exchange rate cushion is gone, inflation pressures may mount.
The EU executive arm has therefore urged tighter Slovak budget
discipline to keep inflation under control.
But Slovakia has already made substantial budget deficit
cuts and the Commission remarks have sparked market speculation
that Slovakia could again revalue the crown, possibly at the
time when the conversion rate to the euro is set in mid-year, if
the country is accepted into the single currency area.
Hungary abandoned a similar trading band for the forint
earlier this week in the hope that the currency would appreciate
and help fight high inflation.
The issue of sustainability of low inflation came to the
fore after price growth in Slovenia, which adopted the euro in
2007, hit 6.4 percent in January, in the highest in the euro
zone, from 2.8 percent a year earlier.
EU officials are keen to avoid another "Slovenia" and pay
special attention to inflation sustainability, EU sources said.
Year-on-year inflation in Slovakia hit a 13-month high of
3.8 percent in January, fuelled by food and energy prices, but
its 12-month average inflation -- the measure used for euro
entry -- was still well below the limit of the average of the 3
best EU performers plus 1.5 percentage points.
Fico said on Thursday Slovakia would keep inflation under
control, through a special anti-inflationary package if needed.
"We are able to keep inflation under control and we are
ready to introduce an anti-inflationary package in order to deal
with this issue," he told reporters. "We will do our best to
guarantee that we keep inflation under control."
The chairman of euro zone finance ministers Jean-Claude
Juncker was optimistic on Slovakia's euro prospects after talks
with Slovak Prime Minister Robert Fico and Pociatek.
"In my capacity as Chairman of the Eurogroup I very much
admire the extraordinary performance of Slovakia as far as
economic reforms and economic success are concerned," Juncker
told reporters. "Slovakia is on an excellent track to fulfil all
the convergence criteria," he said.
While only the European Commission can formally invite
Slovakia into the euro zone, Juncker is a powerful euro zone
figure whose backing is valuable.
(Additional reporting by Peter Laca in Bratislava)
(Writing by Jan Strupczewski; Editing by Jon Boyle)
