The weakening of the Slovak koruna
continued yesterday and when the
EUR/SKK exchange rate moved above the
38.70-barrier, the central bank intervened in
several waves to support the koruna. As a
result, the SKK retreated to levels stronger
than EUR/SKK 38.40. This time the central
bank stepped into the market at a weaker
level compared to the two previous
interventions. We think the NBS tried to test
the market rather than to show its tolerance
towards a weaker level. According to our
estimation the volume of interventions
exceeded EUR 1 bn. The central bank has
around EUR 13 bn of reserves following an
estimated EUR 2.5 bn of interventions in the
last three weeks. This means it won’t be
able to sustain this speed for a long time.
The sentiment on the market is negative. If
the koruna continues to weaken, further
interventions are on the cards. Also, the
probability of a rate hike on the next NBS
meeting (July 25) has increased in our view.
For the near term, we expect EUR/SKK to
oscillate in a wider range of 38.35 - 38.70
driven by news from the political scene
regarding the new economic program as
well as by emerging market sentiment.
There are rumours on the market that
officials of the new government are to meet
with the central bank to discuss euro
adoption this afternoon.
NBS supports SKK by a new wave of
interventions.
(CSOB - Investment research)