(Repeats story published late on Thursday)
By Peter Laca
BRATISLAVA, May 29 (Reuters) - Slovaks awoke to a more prosperous outlook on
Thursday after a surprise 15 percent revaluation of the crown's peg against the
euro that should help contain inflation ahead of planned 2009 euro zone entry.
The country of 5.4 million boosted the crown's central parity in the ERM-2
exchange rate mechanism, the waiting room for euro adoption, after U.S. market
hours on Wednesday to 30.1260 per euro, the second revaluation in two years.
The move sent the crown up 0.8 percent to a fresh all-time high, cementing
its 25 percent gains since Slovakia's 2004 EU entry and boosting the currencies
of other ex-communist newcomers to the bloc.
Analysts said the revaluation was a sign the likes of Poland, Hungary and
the Czech Republic may be encouraged to let their currencies climb before
adopting the euro to fight inflation and raise income levels closer to those in
the West.
A Reuters poll of 16 analysts [] showed the market took the new
parity rate as the likely final euro-crown conversion rate, to be set in July,
despite comments from Prime Minister Robert Fico that appeared to cast some
doubt on that.
"It is not appropriate for me to speculate about the conversion rate, which
has nothing to do with the parity," news agency TASR quoted Fico as saying.
SURPRISE MOVE
The market had expected the adjustment, but was caught off guard by its
early timing and the size -- 17.6472 percent in international terms -- which
allowed the crown to jump past its historical record high trading levels.
Fico has repeatedly said that a strong conversion rate with the euro was a
good way to help Slovaks, who will be the euro zone's poorest member with around
71 percent of average GDP per capita, close the wealth gap.
The revaluation also had strong backing from the EU executive and the
European Central Bank, who have expressed concern that the central European
country will see a spike in inflation after swapping the crown for the single
currency.
The ECB praised the decision on Thursday, saying it was "aimed in particular
at maintaining price stability in a sustainable manner, underpinning external
competitiveness and strengthening economic resilience".
Slovakia, a laggard under former autocratic leader Vladimir Meciar and the
region's poorest country a decade ago, has leapt ahead of neighbours Poland,
Hungary and the Czech Republic in the race to catch up with the rest of the EU.
It led the region last year with growth of 10.4 percent.
The crown's strength has helped keep a lid on inflation, although many
analysts believe price growth -- which hit 3.7 percent by EU methodology in
April -- could surpass the average euro zone rate for a decade or more after
euro adoption.
A recent poll also showed almost three quarters of Slovaks fear euro
adoption will cause a spike in prices, making them effectively poorer, as
happened in Slovenia where inflation hit 6.2 percent in April after it took on
the euro in 2007.
LAST REVALUATION
The crown briefly touched 30.080 per euro but then retreated and was at
30.285 per euro at 1145 GMT.
The unit has firmed 5.4 percent since May 7, when the European Commission
said Slovakia was ready to join the zone.
But, since EU entry, it has trailed the Polish zloty, which has jumped 29
percent, while the Czech crown has risen 24 and the Hungarian forint 4 percent
against the euro.
As new EU members, those countries are also obliged to adopt the euro, but
analysts say their struggles with inflation, budget deficits, and weak political
will mean none of them may join for at least four or five years.
The new central rate was set exactly at the previous strong
limit of the ERM-2's plus/minus 15 percent fluctuation band. The
Slovak central bank said the new limits for the ERM-2 band are 25.6071 crowns
per euro and 34.6449 crowns per euro.
Unicredit emerging markets strategist Martin Blum said there was little
chance for the crown to move significantly again ahead of the final fixing of
the conversion rate, expected in the first week of July.
He said he expected clients to begin closing positions in the currency, and
the once small but popular currency market -- which has attracted investors
alongside the Czech, Polish and Hungarian currencies -- would begin to wind
down.
"We think this is the final revaluation and we recommend taking profit at
more or less these levels," he said.
"Effectively, this is it. Everyone can pack up."
(Additional reporting by Martin Santa; Writing by Michael Winfrey; Editing by
Gerrard Raven)
