Rationale behind the decision of the Bank Board of the NBS on the set levels of the NBS interest rates

The NBS Bank Board has approved the Situation Report on the Monetary Development of Slovakia for February 2008, discussing the current and expected development of inflation. Pushed by cost factors, inflation was increased in February. The same development has also been observed with other EU countries, while demand factors of the price growth have continued to be absent in the SR. This fact has also been supported by the structure of the creation and use of the GDP growth, where the contribution of net export and creation of the value added in the industry were in line with the NBS expectations. The impact of taxes on the GDP creation does not represent a pro-inflation impulse. At the same time, the development of final household consumption did not continue in accelerating the growth rate in the last quarter of 2007 and it did not deviate significantly from the NBS expectations for the entire 2007.

With regard to the fact that no deepening of possible risk influences on inflation development in the area of demand has been identified, the NBS Bank Board has decided on keeping the current levels of interest rates. In making a decision, the NBS Bank Board took account of the following information. Inflation development in February was slightly higher compared with the short-term forecast of the NBS, and it was influenced by development in the prices of both the food and services, where impacts of the growing energy and agro-commodities prices are reflected. In spite of a dynamic growth of economy in the fourth quarter, the development in the GDP structure can be considered acceptable in terms of its impact on inflation development. Both the GDP growth rate for the entire 2007 and its structure were in line with the estimates of the central bank. The profit generation was not reflected in wage development; the investments as well as saving tendencies continued to grow. Compared with the previous year, a favourable development was recorded in unit labour costs in 2007. Based on the related monthly data, foreign trade continued developing favourably also in January 2008.

Based on latest information about macroeconomic development we can observe that it is in line with the NBS expectations. There still exist the identified risks, while non-inflationary wage development needs to be maintained in the environment of the growing cost-pushed inflation in all sectors, and in particular in the public sector that participated in the last quarter of 2007 in a higher-than-expected increase in wages in the Slovak economy. These are the reasons for which it will be inevitable to continue applying the prudential fiscal policy. Within a discussion of the NBS Bank Board concerning the set level of the NBS interest rates, none of the present members made a proposal for change in the interest rates.

Jana Kováčová
Spokesperson of the NBS

National Bank of Slovakia
Communications Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2161,+421-2-5865 2161, +421-2-5787 2166, +421-2-5865 2166
Internet: http://www.nbs.sk

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