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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 discussed and approved the Situation Report on the Monetary Development in Slovakia in August and also discussed the development of the economy for the second quarter of 2008. he released data on the inflation development presented in August, after a long period of increase, a decrease in prices on a month-on-month basis. From the point of view of structure the GDP development did not differ considerably from the central Bank estimates.

The Bank Board of the NBS decided to currently maintain the interest rates at the unchanged levels. In its decision-making, the Bank Board of the NBS took into account the following factors: Inflation development measured by the Harmonized Index of Consumer Prices was stable on a year-on-year basis which was affected by a month-on-month decrease in prices of goods in which the prices of unprocessed foodstuffs decreased. In the prices of services an influence of the cost factors of the current increase in the prices of foodstuffs and fuels persists. Inflation slowdown was also shown in the euro area and the continuation of a favourable inflation development will depend on further development in the prices of commodities. Consumer prices in Slovakia developed in August in line with the central Bank´s expectations. The released comprehensive data regarding development of the economy in the second quarter of 2008 indicate that the slowdown of the GDP year-on-year growth rate was mainly affected by the development of the households´ final consumption. The lower growth rate of households´ final consumption was connected with retail receipts development and represents a positive influence on the demand-pull inflation development. However, in view of the high growth rate of wages and employment, a repeated increase in private consumption could occur in the next quarters of the year. Despite a moderate slowdown of the growth rate of wages and data revision in the wages development in the first quarter of 2008 it is not possible, with respect to the growth of the unit labour costs, to consider wages development adequate to the macroeconomic development. The export growth rate continues to reach favourable values, while a higher deficit of the trade balance is influenced by the development in prices of the raw materials when compared with the same period of last year. With regard to the GDP development structure as well as in connection with the inflation development, the Bank Board of the NBS concluded that the current released data are not an argument for changing a view on existing macroeconomic development which is affected by the cost factors in the area of prices. The slowdown of the real economy development is a result of a base effect of direct foreign investments in the car industry in the previous year, for now without evidence of an impact of the international economy influence. During the Bank Board discussion on the set levels of the NBS interest rates, there was no proposal on changing the interest rates submitting by members present.

Jana Kovacova
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

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