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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 in the Slovak Republic in July and concluded that the macroeconomic development confirmed the current tendencies. The inflation development slightly accelerated when compared with the previous month which was caused by further transfer of the cost factors into the consumer prices, mainly in the area of transport and some services connected with recreation and meals.

From the point of view of the growth rate, inflation in the euro area also showed a similar development. The cost-push character of the growth of prices will probably still persist in the next months whilst the situation in the energy and food commodity prices markets is favourable for the time being.

The development of inflation as well as of the economy of the SR in connection with the released flash estimate by the Statistical Office of the SR was in line with the Central Bank expectations. The Bank Board of the NBS decided on maintaining the current levels of the interest rates.

In its decision-making, the Bank Board of the NBS took into account the following factors: The inflation development measured by the harmonized index of consumer prices slightly accelerated on a year-on-year basis. The prices of goods and services increased for the reason of reflecting the current levels of energy and foodstuffs prices. The effect of excise duty increase in tobacco products would influence foodstuffs prices in the next months, the base effect of the last year increase in food commodity prices will appear on the other side. Therefore the inflation development should not considerably accelerate the year-on-year growth rate.

The Statistical Office of the SR released a flash estimate of the GDP, the growth of which showed a deceleration on the year-on-year basis which was in line with the Central Bank estimates.

From the point of view of the future inflation development the GDP structure will be important, whilst the decelerating growth rate of retail income in the individual months of the second quarter of 2008 could indicate a non-accelerating development of the final consumption growth rate.

The current foreign trade development, whose deficits are also caused by the high prices of mineral resources, does not substantially differ from the NBS´ s expectations.

With respect to the structure of the inflation development and achieved preliminary growth rate of the GDP, the Bank Board of the NBS concluded that the cost-push character of the growth of consumer prices prevails so far. It is important that this fact would not be an impulse for the imbalanced growth of wages. Regarding further growth of employment together with deceleration of the growth of GDP, an imbalance between growth of wages and productivity may occur. The European Central Bank indicates the same risks.During the Bank Board discussion on the set levels of the NBS interest rates, there was no proposal on changing the interest rates submitted by members 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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