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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 the Situation Report on the Monetary Development in Slovakia in September and concluded that Slovakia has not been significantly affected by the world financial crisis, as the banking sector is sound and has enough liquidity, the interbank money market is without any problems. Inflation slightly increased on a year-on-year basis in September. Because of raw materials´ price development, as well as the base effect of last year´ s increase in foodstuffs prices in the last quarter, a slowdown of its growth rate in the next months can be anticipated. Monthly indicators of the real economy development do not offer clear signals of a more considerable slowing of economic growth for the time being. Regarding the reported decrease of foreign demand, both the current and particularly the expected one, we may assume the negative impact on the Slovak economy. This creates assumptions for the adjustment to the ECB´s rates.

Therefore, for the purpose of interest rates´ harmonization and stabilization of the economy in connection with the global crisis, the BR NBS decided on the decrease of the announced interest rates by 0.5 of a percentage point. Inflation development, measured by the Harmonized Index of Consumer Prices, was mainly influenced by the increase in heating prices in September.

In connection with the gradual reflection of the current development of foodstuffs and oil prices, the growth in prices of services also continued in September in the area of catering services and transport. The above-stated cost factors arising from the current development in commodities prices were only partly eliminated by the slowing of the growth rate of foodstuffs prices, mainly that of unprocessed. Inflation development was slightly faster when compared with the central Bank expectations. According to the released monthly data for the selected branches there was a slowing of the growth rate in August in both, the receipts and industrial production, which can be related to the volatility of these preliminary indicators, but can also be the consequence of the current decrease in the final consumption in the economies of our trading partners. Mainly with regard to the impacts of the current financial crisis on the worldwide slowdown in demand it is possible also to expect slowing in the production and export of the SR, particularly in 2009. This should be reflected in the GDP growth rate´ s slowing to a level around 5%, and the inflation should be in accordance with the last medium-term forecast.

Updating of the estimate of macroeconomic development will be the subject of a further medium-term forecast of the NBS, which will be published only at the beginning of December due to the fact that the NBS has already joined the forecast process within the ESCB. This forecast disclosure is in line with the Eurosystem requirements. It has been possible to characterize the interbank money market as stable during September, without more visible impact of the ongoing financial crisis. The NBS has continued in the standard execution of free market operations, although a certain volatility was recorded in the area of the exchange rate. On 28 October 2008 the Bank Board of the NBS voted on the proposal to decrease the set levels of the NBS´ s interest rates as follows: out of 10 appointed members of the Bank Board of the NBS, 9 members voted for the decreasing, 1 member was not present.

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

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