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Slovak koruna drops by most in two years on central bank sales

Slovakia's koruna fell by the most against the euro in more than two years after the central bank sold the currency, saying its previous advance was excessive.

The National Bank of Slovakia began selling koruna for the common currency at a rate of 32.80 per euro, and continued the sales after the koruna fell to 33.2, traders said. The koruna soared to a record yesterday after the country won European Union approval to lift the so-called central parity rate. „We could see further central bank intervention in coming days until the currency stabilizes,” said Jon Harrison, an emerging markets strategist at Dresdner Kleinwort in London. „The central bank will want it to be closer to the center of the parity” rate.

Against the euro, the koruna fell as much as 1.8% TO 33.38, its biggest drop since March 16, 2005, and was at 33.33 by 4:12 p.m. in Bratislava, from 32.79 yesterday, when it reached a record high of 32.77. The Slovak koruna was today the worst performer of the 71 currencies monitored by Bloomberg. The central bank, which wants the koruna to trade within a 15% band on each side of the central rate of 35.4424, is concerned a stronger koruna may hurt exporters and slow economic growth, on which the nation relies to catch up with western peers. „Our economy has a strong export orientation and too much strengthening is causing problems to export companies,” central bank Governor Ivan Sramko said in an interview with aktualne.sk, a Bratislava-based Internet news service. „We intervened against excess volatility.” The central bank last sold koruna on March 8 after it rose to 33.82 per euro.

Sramko said the new central rate of 35.4424 reflects the koruna's „equilibrium” exchange rate, a level at which the economy can function „without any shocks.” The bank also rejected all bids at its weekly sale of repurchase agreements today. The central bank didn't say why it rejected all offers, though it used repo rejections earlier this year to combat the appreciation of the koruna. The central bank may also use the interest rates to counter the koruna gains in the future, said Carsten Fritsch, a currency strategist at Commerzbank AG in an interview. „The National Bank of Slovakia will cut interest rates by up to 50 basis points in March,” Fritsch said. „Eventually it may even cut rates below the European Central Bank rate to make sure it isn't inflating an exchange rate bubble.”

In other trading, Poland's zloty slid to 3.88 per euro in Warsaw from 3.868 on March 19. The yield on Poland's 5.25% bond due October 2017 fell to 5.18%. The spread over the similar maturity German bond widened to 129 basis points. The central bank meets on April 27 to decide on borrowing costs, now at 4.75%. The Hungarian forint fell to 246.60 per euro from 245.93 yesterday and the yield on the Hungarian 6% bond due October 2011 was at 7.21% in Budapest. The spread over the equivalent maturity German bund widened to 327 basis points. (Bloomberg)