(Adds central bank comments)
By Peter Laca
BRATISLAVA, April 29 (Reuters) - The Slovak central bank
left interest rates unchanged for a 12th consecutive month on
Tuesday, a week before the European Commission rules on whether
the country is fit to adopt the euro next year.
The decision leaves the key two-week repo rate at 4.25
percent, 25 basis points above the euro zone equivalent.
Slovakia is expected to become the 16th member of the euro
zone on Jan. 1, and an EU affairs website quoted a draft
Commission paper on Tuesday as saying Bratislava would get the
green light on May 7.
National Bank of Slovakia (NBS) Governor Ivan Sramko said no
board member had proposed changing borrowing costs on Tuesday.
"Given the expected favourable development in production
capacity in the economy, there are no signals of its overheating
at present," he told reporters after a policy meeting.
The NBS has held rates for a year despite accelerating
inflation, saying factors outside its influence such as food and
energy costs were driving consumer prices up.
The 12-month average inflation rate, calculated to March
2008, was well below the threshold which countries have to reach
to adopt the euro. The European Commission forecast on Monday
that Slovak inflation would stay under the euro zone reference
value this year and next.
The Slovak crown was flat after the rate decision at 32.250
per euro, shy of an all-time high of 32.200 on Monday. The
crown's strength has helped to keep inflation low.
Government and central bank officials said the forecasts
showed Slovakia could meet the inflation criterion in a
sustainable way, a key issue in assessing Bratislava's bid.
Web site EUobserver.com reported that a draft Commission
assessment of Slovakia's suitability to adopt the euro said it
had met all the conditions.
CAUTIOUS STANCE
In other emerging markets, inflation prompted interest rate
increases in Russia and Hungary on Monday, and Brazil and South
Africa earlier in the month. Turkey is expected to follow suit,
although most central European banks meeting in the next few
weeks are likely to stay put.
Analysts said that apart from global inflation factors, they
also saw a rising risk of pressures caused by strong consumer
spending in Slovakia, which warranted a cautious monetary policy
stance.
Slovakia will to have align its borrowing costs with the
European Central Bank as part of the euro adoption process, but
market watchers saw no need to rush into the adjustment.
"We expect the NBS to adjust its policy rate to the ECB
level only in 3Q08 (the third quarter of this year), after the
announcement of the final conversion rate in July," said Eduard
Hagar, an analyst with ING Bank in Bratislava.
Rising prices and the European Central Bank's tough
anti-inflation rhetoric have prompted some analysts to push back
their expectations of a euro zone interest rate cut.
Any ECB rate cut would mean even more significant monetary
easing in Slovakia after it abandons the currency and a
independent monetary policy. Many analysts have said that
setting the crown switchover rate at a strong level would help
to counter some inflation after euro adoption.
(Reporting by Peter Laca; Editing by Michael Winfrey and David
Stamp)
