(Adds Reuters poll)
By Michael Winfrey,
Economic correspondent, Central Europe and the Balkans
PRAGUE, May 29 (Reuters) - Currency traders betting on the
Slovak crown can start packing up shop, because its central
parity rate against the euro following its revaluation will
probably be the official rate for euro zone entry.
But the decision, taken late on Wednesday, signalled that
Poland, the Czech Republic, Hungary and other euro zone hopefuls
may be encouraged to pursue strong conversion rates when they
finally join the euro zone, giving them a short-term boost.
The move pushed the crown's central parity in the ERM-2
exchange rate mechanism 15 percent to the strong side to 30.1260
per euro, jumping past the crown's historic trading high and
surprising markets in both its timing and scope.
It pushed the crown around 0.8 percent firmer to a new
record high of 30.080 per euro. It also spurred the Hungarian
forint 0.73 percent to a five-year high of 241.21 per euro and
lifted the Polish zloty 0.22 and the Romanian leu 0.5 percent.
Despite the gains, analysts said the revaluation had
effectively ended long crown positions.
"Is this it for EUR/SKK? Most likely," Morgan Stanley said
in a research report.
Prime Minister Robert Fico appeared to cast some doubt over
whether the new central peg -- 17.6472 percent stronger in
international terms -- could be the final euro-crown conversion
rate, saying it "has nothing to do with parity".
But a Reuters snap poll of analysts [] showed
the market expects Bratislava to convert the crown to the euro
at the central parity rate. Martin Blum, head of emerging
markets strategy at Unicredit, said it was time to take profits.
"We don't expect another revaluation from here, but when
they announce the final, final figure in the first week of July,
we expect them to massage it slightly to 30 (per euro) because
it's a convenient figure for people to use," he said.
"Effectively, this is it. Everyone can pack up."
LESSON TO OTHERS
Morgan Stanley said the Slovak lesson for future euro zone
joiners -- the next one is expected in around 2012 -- is that
they could allow their currencies to climb on a "crawling peg"
ahead of euro zone entry, potentially firming significantly.
"Other future entrants will learn that it is acceptable to
appreciate one's way into the euro," it said.
The crown has firmed 5.4 percent to the euro since May 7,
when the European Commission said Slovakia was ready to join the
zone, and 25 percent since Slovakia's 2004 EU entry.
The gains, cemented by Slovakia's two revaluations, have
boosted the incomes of its 5.4 million people, helped fight
inflation, and brought its exchange rate closer to the euro
zone's, reducing its still sizeable cost advantage over its
future monetary union partners.
Economists said there was a small but unrealistic chance the
unit could appreciate further because the central bank was no
longer under pressure to keep it within the strong end of the
previous ERM-2 band.
"At least in theory, (the crown) could appreciate to as high
as 25.6 per euro," Morgan Stanley said. "This is unlikely to
happen over the next month, of course."
Dresdner Kleinwort economist Raffaella Tenconi added: "Until
the actual euro exchange, anything can happen. That said, I
think the big moves have been done. I expect the final
conversion rate to be very close to the new parity."
They also said that, even if regional currencies show short
term gains on the news, capitals like Budapest and Prague have a
long way to go before the Slovak example might come into play.
"The bigger picture is that none of these countries are
anywhere close to euro entry for some time," said Neil Shearing
from Capital Economics in London.
(Editing by Gerrard Raven)
