2000-2004 (implicit inflation targeting)

The year 2000 brought a shift to qualitative management of the NBS monetary policy. The beginning of a new phase of monetary policy since February meant a significant departure from the earlier monetary policy control through the quantitative variables (intermediate targets) to the use of market instruments to influence the interbank money market and to the more flexible monetary policy management through the setting of interest rates by the bank board of the NBS. In accordance with the transition to an implicit inflation targeting and medium-term objectives in the area of harmonization and gradual convergence of execution and instruments of monetary policy of the NBS to the standards used by the ECB, the NBS began to increasingly use qualitative management tools. The impetus for change was particularly the extreme fluctuations of interest rates in the years 1993-1999. However, suitable conditions arrived only after the removal of the main risk of such a step, after the reduction of exchange rate volatility.

The focus of monetary policy on the inflation was accentuated by the amendment to the NBS Act of 2001, as the main objective of maintaining monetary stability was replaced with the aim of maintaining price stability. NBS continued in the changing of the monetary instruments setting and in January it decided to lower the reserve requirement from 6.5 % to 5 % (together with gradual annual decrease of 1 p.p. up to 2 % in 2004, i.e. to 4 % in 2002 and to 3 % in 2003 The frequency of RR evaluation was changed from 2 weeks to 1 month). Since January 2002, the NBS eliminated the use of administrative instruments in favor of standardized (lombard loans provision and promissory notes transactions were cancelled) and set the discount rate equal to the NBS announced limit rate for two-week REPO tenders.

After the transition to the qualitative management of monetary policy, the NBS monetary policy was implemented mainly through standard open market operations with following (key) interest rates: NBS base rate equal to the marginal rate for the standard two-week REPO tenders, the sterilization interest rate for one-day deposits and the interest rate for one-fay loans. The bank board of the NBS regularly (at least one a month) decided on setting rates (i.e. increase, decrease or leave unchanged) when discussing the situation report on monetary developments. Key interest rates represented the main instrument of the NBS in relation to the medium term objective. The central bank responded by their changing to the identified economic imbalances and deviations of the expected development of inflation from specified target. The key interest rates represented set prices of transactions with banks on the domestic interbank money market but also a signal to the public about the development of NBS inflation expectations.

In July 2003, the Slovak government discussed the common material of Ministry of finance and the NBS „Euro adoption strategy” and endorsed the „Joint declaration of the Government of Slovakia and the NBS concerning the procedure for joining the euro area” and committed itself to the successful implementation of reforms and the introduction of the euro in Slovakia between 2008 and 2009.

In May 2004, Slovakia joined the European union and the NBS was incorporated into the European system of central banks. By signing the Accession treaty, Slovakia became a member of the Economic and Monetary Union as a member state with derogation and committed to become a future member of the monetary union. In September, the government approved a common material of Ministry of Finance and the NBS „Specification of the euro adoption strategy in Slovakia”, where it was concluded that the introduction of the euro was viewed possible in 2009.