Press release Rationale behind the decision of the Bank Board of the NBS on the set levels of the NBS interest rates
The Bank Board of the NBS at its 10th Meeting discussed the Situation Report on Monetary Development in the SR in January and concluded that the current macroeconomic development was not different from the assumptions presented in the Medium-Term Forecast.
In spite of the fact that at the time of the Bank Board Meeting no information on development of inflation measured by the Harmonized Index of Consumer Prices was available, it can be concluded from the development of individual items of the national index that the development of inflation should be in line with NBS´s expectations in January. At the same time the GDP growth rate did not differ from the NBS´s expectations and confirmed that the economy of the SR has good grounds for the continuing fast and healthy economic growth.
In its decision-making, the Bank Board of the NBS considered the following factors.
Inflation measured by the Harmonized Index of Consumer Prices will be published by the Statistical Office of the SR only after the meeting of the Bank Board of the NBS. On the basis of the national index of consumer prices (CPI) January saw higher than expected month-on-month increase in price levels. This was caused by the development of cost factors of market services, mainly that of Repairs Fund and inputed rent. However, the above-stated items are not part of the harmonized price statistics, for this reason they will not have a positive impact on the inflation measured by HICP. Development of other items which are common for both methodologies except for food, which reported a higher growth rate when compared to the estimates, was in line with NBS´s expectations.
The released flash estimate of the GDP did not differ from the point of view of reached rate of growth from the NBS ´s estimates, and was also in line with the development of monthly proceeds indicators, production and economic sentiment.
The accompanying comments of the Statistical Office of the Slovak Republic with regard to the published data indicate that the high economic growth is closely connected with the export performance of the economy. With respect to the slowdown of the growth rate of employment it can be anticipated that labour productivity development should get ahead of growth of wages, by which the central Bank´s assumptions resulting from the Medium-Term Forecast should be met.
On the basis of the current and expected macroeconomic developments, the Bank Board of the NBS concluded that it was in line with the latest medium-term forecast. From the CPI structure it is possible to assume that except for foodstuff prices, the identified inflation risks were not accomplished. Individual indicators of the macroeconomic developments are in line with the central bank assumptions, therefore, it was not necessary to change the setting of the monetary policy.
The Bank Board of the NBS also dealt with the comparison of interest rates of selected banking products in Slovakia, euro area and in V 4 countries. The analysis indicates that differential of some segments in the Slovak Republic (it concerns particularly consumer loans to households) is remarkably high.
A proposal to decrease the set levels of interest rates by 0.25 of a percentage point did not gain a sufficient support at the Bank Board Meeting on 27 February 2007. The Bank Board of the NBS voted on this issue as follows: out of 8 appointed members of the Bank Board of the NBS 1 member voted for this approval, 6 members voted against and 1 member did not vote.
Jana Kovacova
Communications Section
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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