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2005-2008 (inflation targeting under ERM II)

The timing of the integration ambitions of the Slovak republic represented a time frame for the monetary policy of the NBS, in which it was responsible for meeting the inflation and exchange rate Maastricht criteria. Therefore, the Monetary programme of the NBS until 2008 published in December 2004 defined a framework for the conduct of the monetary policy in the medium term as inflation targeting under ERM II. In order to fulfill its obligations of EU membership and with the intention to create conditions for adoption of the common euro currency and for reduction of the fiscal deficit, the NBS aimed for the inflation measured by harmonized index of consumer prices (HICP) below 2.5 % by December 2006 and below 2.0 % by December 2007 and 2008 so as to fulfill the Maastricht criterion based on the average twelve-month inflation. The target for the December 2005 was set at 3.5 % ± 0.5 p.p. Inflation targets represented a clear commitment of NBS monetary policy. Crucial prerequisite for achieving the inflation target was the coordination of fiscal and monetary policy. The departure from announced path of fiscal consolidation and the introduction of additional administrative measures and changes in indirect taxes were factors out of the scope of the monetary policy that represented significant risks to the achieving of the inflation target.

NBS transition to the inflation targeting in 2005 brought about an application of interest rates as a monetary-policy instrument of the central bank but also orientation to a greater extent on the formation of inflation expectations of the public as another indirect but powerful tool affecting the course of inflation. Also, the quarterly medium-term prediction model was introduced in the forecasting process. The first medium-term prediction P2Q-2005 was presented in April 2005.

In July 2005, the National euro changeover plan for Slovakia was adopted. On 25 November 2005, the Slovak koruna entered the exchange rate mechanism ERM II, where the central rate of the koruna against the euro was set at 1 euro = 38.4550 SKK with the fluctuation band of ± 15 %. The membership in the ERM II and the central rate contributed to the stabilization of the exchange rate of the Slovak koruna and nominal convergence. At the entry to the ERM II, Slovakia remained committed to pursue sound fiscal policy and to support such a wage development that would be in line with productivity growth.

In March 2007, at the request of Slovakia, the central rate of the Slovak koruna in ERM II was revalued at 1 euro = 35.4424 SKK with effect from 19 March.

In May 2008, Convergence report of the European Commission concluded that Slovakia meets the criteria for adopting the euro and the central rate of the Slovak koruna in ERM II was revalued by 17.6472 % to the new parity at 1 euro = 30.1260 SKK. In June, the meeting of the Economic and Financial Affairs Council (ECOFIN) recommended the entry of Slovakia into the euro area on 1 January 2009 and the European Council subsequently confirmed the accession of the Slovak republic. In July, the Economic and Financial Affairs Council (ECOFIN) set an irrevocable conversion rate between the euro and the Slovak koruna (conversion rate) at 1 euro = 30.1260 SKK.

On 1 January 2009, the Slovak republic became the 16th member country of the euro area.