(Adds analyst comments)
By Peter Laca
BRATISLAVA, April 29 (Reuters) - The Slovak central bank
left interest rates unchanged on Tuesday, keeping borrowing
costs steady for the 12th consecutive month just a week before a
ruling on the country's bid to adopt the euro.
The decision, made at the monthly monetary policy meeting,
left the key two-week repo rate at 4.25 percent, preserving a 25
basis point premium over the euro zone benchmark rate.
The central bank did not comment on the decision, saying
board members would provide more information at a news
conference scheduled for 1030 GMT.
The National Bank of Slovakia (NBS) has kept borrowing costs
steady in the past year amid accelerating inflation, saying
prices were driven by factors outside the influence of its
monetary policy, such as food and energy.
Despite accelerating price growth, Slovakia's 12-month
average inflation rate, calculated to March 2008, was well below
the threshold for euro adoption.
Economic forecasts by the European Commission, the European
Union's executive arm, indicated on Monday that Slovak inflation
was set to remain under the reference value for entering the
single currency area this year and in 2009, when it aims to
join.
The Slovak crown was flat after the decision at 32.250 per
euro, shy of all-time high of 32.200 following the Commission's
forecasts on Monday. The strong crown has helped keep inflation
low.
Slovak government and central bank officials said the
commission's forecasts showed Slovakia was able to meet the
inflation criterion in a sustainable way, a key issue in
assessing Bratislava's readiness to adopt the euro.
The European Commission will say on May 7 whether Slovakia
is ready to become the 16th member of the euro zone, and on
Tuesday a news item on the European Union affairs website
EUobserver.com cited the commission's draft report as saying
Bratislava was set to get the green light.
CAUTIOUS STANCE
Analysts said demand-led pressures were gradually rising in
the fast growing Slovak economy -- as elsewhere around the globe
-- which warranted a cautious monetary policy stance.
In other emerging markets, inflation prompted rate hikes in
Russia and Hungary on Monday, and Brazil and South Africa
earlier. Turkey is seen raising as well, although most central
European banks meeting in the coming weeks are seen staying put.
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 with 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.
However, slowing German inflation in April suggested price
pressures in the euro zone have retreated, and with them the
risk of monetary policy tightening by the ECB.
An eventual rate cut by the ECB would mean even more
significant monetary easing in Slovakia after it abandons the
currency and independent monetary policy.
Many analysts said setting the crown switchover rate at a
strong level would help counter some inflation pressures after
euro adoption.
(Reporting by Peter Laca; Editing by Michael Winfrey and
Gerrard Raven)
