Being influenced by the regional sentiment,
the Slovak koruna eased against the euro.
From the opening level of EUR/SKK 36.37 it
went to 36.47. But this move was short lived
with the cross closing lower at 36.34. Today,
the NBS announces its monthly interestrate
decision. Uncommonly, the Bank
board meeting starts at 3 o’clock p.m. The
market is split into two groups – a larger one
expects the rates to be lifted by 25 bps,
another one bets for unchanged rates.
We
belong to the first group. Although the
stronger koruna brightens the inflation
outlook, we still see some inflationary risks
stemming mainly from strong wage growth
and a too little restrictive 2007 state budget.
Since the hike is fully priced in by the
market, the decision should come as
neutral for the koruna. On the other hand,
if rates stay unchanged, we would expect a
short negative reaction. However, the key
attention will be on the wording in the
following comments and the inflation report
that will include the updated CPI forecast.
But the press conference starts at 5 p.m., so
subsequent comments will not influence
today’s session. We expect the koruna to
become range-bound on a more balanced
trading. On Wednesday, markets are closed
due to the national holiday. The trading
resumes again on Thursday, November 2.
(CSOB - Investement research)