(Adds crown close, fresh analyst comment, fixes typo in line 41)
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 at what level the conversion
rate may be set.
But he said global turbulence, which has knocked the crown
lower in the past few weeks, may shift the actual market rate
out of equilibrium.
"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 one percent against the euro after Sramko's
comments as the market saw them as a signal the NBS may want to
see a stronger currency before the euro entry level talks.
"The market viewed the comments in a way that the conversion
rate may differ from the spot level, if the spot rate is
influenced by global sentiment," said Maria Valachyova, senior
analyst at Slovenska Sporitelna, an Erste Bank unit.
Valachyova said the equilibrium level was forecast to be
between 32.500-33.000 per euro at the time of setting the
switchover rate.
The Slovak unit was at 33.500 per euro <EURSKK=> at the
close of local trading at 1530 GMT, compared with 33.800 before
Sramko's remarks and with 33.815 late on Wednesday.
ANTI-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;
editing by Tony Austin)
