The Financial Institute Policy (IFP) at the Finance Ministry considers the set conversion rate favorable for Slovakia's economy although it is slightly stronger compared with the estimated equilibrium exchange rate. An analysis drafted by the institute reads that the estimated equilibrium exchange rate ranges from 30.5 SKK/EUR to 31.5 SKK/EUR. The fixed conversion rate, with the use of which all values will be calculated in the euro changeover period, was confirmed at 30.1260 SKK/EUR on July 8. The estimated equilibrium exchange rate provides a basis for the setting of the conversion rate, since the fixed rate should be determined so that it will not threaten balanced economic development. The equilibrium exchange rate is an analytical quantity that cannot be measured directly; it can only be estimated using different model approaches, writes the institute in its paper.
The institute further says that outcomes of its analysis including risks related to stronger and weaker fixed rate respectively were handed over to the Finance Minister on May 16, 2008, at the time when the market exchange rate was 31.64 SKK/EUR. The central parity stood at 35.44 SKK/EUR. An overvalued fixed rate creates unfavorable conditions for exporters, and, thus, for the overall economic growth. On the other hand, an underestimated rate generates higher inflationary pressures. The slightly stronger conversion rate complies with the analysis of risks and of distributive effects included in the paper. A relatively sound strengthening trend showed by the Slovak crown over the past years did not cause real problems to competitiveness. Exporters reported growing output and profit, while the market share of Slovakia's exports grew faster compared with other countries. Reasons for this were high productivity growth and high share of imported components. Under currently strong economic growth, overheating of the economy linked to inflationary pressures seems to be a bigger risk, mainly upon current global price growth of energy and food.
The Council of the EU Finance Ministers, ECOFIN, decided at its session on July 8 that Slovak crowns will be swapped for euros at 30.1260 SKK/EUR from January 1, 2009. Shortly afterwards Prime Minister Robert Fico announced that the Cabinet strove for rounding the conversion rate to 30 SKK/EUR or 30.1 SKK/EUR. In relation to this, Mr. Fico added that the European Commission turned this suggestion down. Such a step would create a precedent because the conversion rate has always been set at the central parity level until now.