Quiet trading on the Slovak forex market yesterday with the regular 2-week sterilisation
repo tender the only distraction. As some of the market expected, the central
bank rejected some of bids to support the impact of last week’s direct intervention.
Nevertheless, the koruna was left in the cold and finished the session slightly
stronger at EUR/SKK 34.43.
The NBS tries to fight the strength of the currency by leaving excessive liquidity on
the market via its sterilisation repo tenders. It did so in the past (in the beginning of
2005); however we doubt that the bank will be able to maintain this policy over a
longer period. What else can the NBS do with the strong currency? It has already
used three of the tools at its disposal. Apart from yesterday’s rejection of the repo
bids, it has already both verbally and directly intervened on the market at the end of
2006. The direct intervention came after the koruna hit a new all-time high of
EUR/SKK 34.05. The fourth step might be a revaluation of the central parity. Note,
that the koruna trades at a level 10% stronger than its parity. But, we expect this step
to be off the table for now.
The domestic calendar currently lacks to give any relevant information. The further
development may depend on the global sentiment. We expect mainly technical trading
to prevail in days ahead.
(CSOB - Investment research)