Slovak National Bank Intervenes in Forex Market
The end of December 2006 brought a record level of the Slovak koruna. The Slovak National Bank reacted against the appreciation with an intervention in the foreign exchange (forex) market.
Rudy Weissenbacher - Jan. 04, 2007
The year 2006 saw the strongest appreciation of the Slovak koruna since the introduction of the euro in 1999: It gained nine percent against the euro and 18 percent against the US dollar. When the Slovak government had decided not to give up the target of adopting the euro in 2009, as Barbara Nestor, a London based emerging market strategist of Commerzbank AG told Bloomberg Newswire, "we decided to carry on with the strategy of holding to the koruna as our long term favorable currency bet''.
And indeed, the end of 2006 brought a record koruna level. The Slovak paper SME suspected British banks to have bought Slovak koruna and therefore to be responsible for the renewed appreciation. After the koruna had reached a record level of 34.06 to the euro on December 28, 2006, the Slovak National Bank (NBS) intervened against the appreciation by selling its currency for euro at the foreign exchange market. SME estimated the intervention to be about 600-800 million euro but the amount of intervention seems to remain unknown until NBS publishes exact figures later this year.
On Thursday, December 29, however, the Slovak koruna depreciated against the euro from a 33.92 morning low to 34.39: "The central bank is intervening to stop the koruna from firming too quickly amid low market liquidity," Associated Press (AP) quotes Igor Barat, spokesman of the Slovak National Bank (NBS).
"It seems that the NBS is ready to defend Sk34 per euro," OTP Banka Slovensko dealer Juraj Mitosinka was reported saying by the Czech News Ageny. Further pressure towards appreciation, however, seems to be expected: "The pull of EMU [European Monetary Union, R.W:.] entry is almost a magnet, it's still there to strengthen the currency," Steven Barrow, chief currency strategist at Bear Stearns Cos. in London, told Bloomberg Newswire: "In 2007, it will make some progress."
Read the IPE background story on the situation of the Slovak currency and parallels to Latin American countries in the 1990s, before they entered years of financial crises: Slovakia: External Deficits and the Euro
And indeed, the end of 2006 brought a record koruna level. The Slovak paper SME suspected British banks to have bought Slovak koruna and therefore to be responsible for the renewed appreciation. After the koruna had reached a record level of 34.06 to the euro on December 28, 2006, the Slovak National Bank (NBS) intervened against the appreciation by selling its currency for euro at the foreign exchange market. SME estimated the intervention to be about 600-800 million euro but the amount of intervention seems to remain unknown until NBS publishes exact figures later this year.
On Thursday, December 29, however, the Slovak koruna depreciated against the euro from a 33.92 morning low to 34.39: "The central bank is intervening to stop the koruna from firming too quickly amid low market liquidity," Associated Press (AP) quotes Igor Barat, spokesman of the Slovak National Bank (NBS).
"It seems that the NBS is ready to defend Sk34 per euro," OTP Banka Slovensko dealer Juraj Mitosinka was reported saying by the Czech News Ageny. Further pressure towards appreciation, however, seems to be expected: "The pull of EMU [European Monetary Union, R.W:.] entry is almost a magnet, it's still there to strengthen the currency," Steven Barrow, chief currency strategist at Bear Stearns Cos. in London, told Bloomberg Newswire: "In 2007, it will make some progress."
Read the IPE background story on the situation of the Slovak currency and parallels to Latin American countries in the 1990s, before they entered years of financial crises: Slovakia: External Deficits and the Euro
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