(Adds central bank comments)
By Peter Laca
BRATISLAVA, March 25 (Reuters) - The Slovak central bank
held its interest rates unchanged on Tuesday, keeping borrowing
costs stable for the 11th month in a row as the country
approaches a judgement on its bid to adopt the euro in 2009.
The decision, made at the monthly monetary policy meeting,
held the key two-week interest rate at 4.25 percent and
preserved a 25 basis point premium over the main euro zone
interest rate.
Central bank Governor Ivan Sramko said the board was
unanimous in leaving rates on hold. He added the bank still saw
no demand-led inflation pressure in the economy, but called on
the cabinet to continue pursuing a cautious fiscal policy.
"Because a deepening of possible inflation risks in the
demand area has not been identified, the Bank Board decided to
leave interest rates at their current level," Sramko told
journalists.
The rate verdict was in line with market expectations. The
crown traded at 32.650 per euro <EURSKK=> as of 1240 GMT, little
changed from 32.630 earlier in the session.
The NBS has held borrowing costs unchanged amid accelerating
inflation, saying consumer price growth has been driven by the
rising costs of food and energy, which are outside the influence
of its monetary policy.
Sramko also reiterated the central bank's view that economic
growth, which reached a record high annual rate of 10.4 percent
last year, was in line with expectations and had not spurred
demand-led inflation risks.
However, the central bank said growth in public sector wages
in the fourth-quarter of 2007 helped fuel faster than expected
overall salary increases, adding that "non-inflationary wage
development" was needed in all sectors of the economy.
"Because of these reasons, it will be necessary to continue
with a cautious fiscal policy," Sramko said.
RATES SEEN FLAT
Analysts expect Slovak rates to stay on hold for several
more months before the NBS will have to align its borrowing
costs with the euro zone as part of the euro adoption process.
"While inflation acceleration and associated risks could
speak in favour of a small rate hike, the approaching euro
adoption, assuming the assessment goes well, means the impact of
such a move would only be short-lived," Slovenska Sporitelna
analyst Michal Musak said.
"Adoption of the European currency will also mean adopting
European interest rates."
Slovakia's EU-norm inflation rate jumped to a 14-month high
of 3.4 percent on an annual basis in February, from 3.2 percent
in the previous month.
But the 12-month average inflation rate, which is the key
price growth gauge for assessment of readiness to join the euro
zone, remained well below the euro adoption threshold.
Slovakia predicts it will meet all nominal criteria for
adopting the euro when the European Commission, the European
Union's executive arm, makes its recommendation on Bratislava's
application to join the euro zone, expected in April or May.
Slovakia also has to prove its inflation will stay under
control after euro zone entry takes away the cooling impact of a
firming crown on consumer prices and the country gives up its
independent monetary policy.
(Editing by Michael Winfrey)
