The policy board of the National Board of Slovakia unanimously voted to keep key interest rates unchanged at its regular session, NBS spokesman Igor Barat informed. The central bank, however, acknowledged the existence of inflationary risks in the economy and noted that the monetary policy needed to be tightened. In this regard, it explained that the necessary measures were already taken in February when the bank hiked the rates by 50 basis points but emphasized its readiness to react with additional steps in case there were risks for the inflation not meeting Maastricht criteria for adoption of the Euro.
The NBS has admitted for the first time that there was a potential for demand pressure on the price level in addition to the prevailing cost factors, which implies that the central bank considered economy overheating as likely. According to the NBS, energy and food prices were the main factors behind the inflation acceleration in the first months of the year. It expected them to play a leading role in the price growth dynamics in the next months along with the excise tax rate hikes, which were not yet fully reflected in the price level. On the demand side, the central bank warned that high real wage growth might feed into consumption-driven price increases and, in case the trend from the past year continues, it could threaten the competitiveness of the economy. The NBS also voiced concerns that the accelerating inflation beyond the initial official targets of the bank could spur inflation expectations for the future but stressed that it has taken account of these risks already with the February rate hike.