(Adds central bank comments)
By Peter Laca
BRATISLAVA, Feb 26 (Reuters) - The Slovak central bank kept
interest rates unchanged for the 10th month in a row on Tuesday,
in line with market expectations, saying rapid economic growth
was not creating inflationary pressures.
The decision left the main two-week interest rate at 4.25
percent, preserving a quarter percentage point premium over the
main euro zone interest rate just 10 months before Slovakia
plans to adopt the single European currency.
NBS Vice Governor Viliam Ostrozlik said the economy was
broadly developing in line with expectations and a monetary
policy change was not warranted.
Slovakia's economy grew by a record 10.3 percent in 2007,
according to preliminary data, boosted partly by people stocking
up on cigarettes ahead of a tax hike, but the NBS said the
export-driven nature of the expansion meant it was not creating
demand-led inflationary pressures.
"Macroeconomic deviations from NBS' estimates are caused by
cost or one-off factors," Ostrozlik told a news conference.
Inflation is Slovakia's key challenge in seeking to become
the 16th member of the euro zone. Using the EU measure, Slovak
inflation hit a one-year peak of 2.5 percent in December.
However, the price growth spike was driven mainly by higher
food and fuel costs which are pushing up inflation rates around
the world, and Slovak inflation has been under the variable
threshold for euro adoption since August last year.
Bratislava expects to meet the nominal conditions for
entering the euro zone when its application is assessed in the
spring. But it will also have to prove it has inflation under
long-term control.
NO COMMENT ON CROWN
The Slovak crown hit a record high of 32.680 to the euro
<EURSKK=> on Monday, and a rising currency tightens monetary
conditions for the economy.
The crown was boosted by comments by Central Bank Vice
Governor Martin Barto, who said last week the switchover rate to
the euro should reflect future and not only past developments in
economic fundamentals.
Analysts say rising productivity would justify a stronger
conversion rate to the euro, which will be decided by the Slovak
government and EU authorities by the end of July.
A firmer switchover level, economists say, would help to
counter inflation risks after the country loses the economic
flexibility of independent monetary policy and its own currency.
Vice Governor Ostrozlik said the board agreed it would not
comment on the conversion rate until it is set.
Slovakia will have to bring its rates to parity with the
euro zone as part of the euro adoption process, and an eventual
rate reduction by the European Central Bank (ECB) would mean
even sharper monetary policy easing in the small ex-communist EU
member if it is judged ready to join the euro bloc.
"The NBS would need to align its policy rates with the ECB
in the second half of 2008, delivering an additional monetary
stimulus to the economy, which could be compensated for by a
stronger (currency) conversion rate," said ING Bank analyst
Eduard Hagara.
(Editing by Gerrard Raven)
