The National Bank of Slovakia (NBS) introduced in December 1998 a programme for this year. As opposed to the preceding years, when the main goal of the NBS's monetary policy was primarily to strengthen internal and external stability of the Slovak crown, this year's priority for the central bank is the tightening of fiscal policy as a condition for favourable trends in price levels and real economics.

According to Vladimír Masár, the NBS governor, the 1999 monetary programme has been affected with the fact that the state budget for 1999 was not in due time. By lowering the fiscal deficit, the NBS intends to put in place a limitation on domestic demand and consumption with a subsequent impact on state trade balance developments.

Consolidation fiscal measures are to provide for a marked reduction of the proportion of the balance of payments current account deficit to 5.5 per cent of the gross domestic product (GDP). Owing to the "package of economic (austerity) measures" and price deregulation, the NBS predicts a net inflation of 5-7 per cent. The central bank's management justifies the ambiguous targetting of inflation for this year by the unclear government goal with respect to the deregulation of prices regulated by the state. Should there by a 10 % rise in regulated prices, an impact on the consumer price index would be approximately 2 percentage points - inflation would be running at 7-9 per cent. For a 20 % rise therein, a price increase would account for as much as 3.8 percentage points and inflation would achieve 8.8-10.8 per cent.

The NBS also anticipates in the new year a zero rise in wages. Most stringent measures will be implemented primarily in the public sector. Lowering the fiscal deficit from 5 per cent in 1998 to 1.3 per cent of the GDP this year should manifest itself not only in a reduced state administration consumption but also in the other areas of the economy in fixed prices and a subsequent fall in the GDP growth rate to 3 per cent.

According to V. Masár, a more stringent fiscal policy will not mean a more lax monetary policy. Under its monetary policy, the NBS intends to attain a 6 % rise in the money supply (stock) in 1999. There will be, however, changes also in NBS monetary instruments. The foreign currency position of banks for monetary purposes will be repealed. The reason was the cancellation of the fixed exchange rate policy that had more or less guaranteed for companies a permanent rate and favoured foreign exchange credits over crown ones. This measure will reflect in a fall in balance sheet sums of certain commercial banks which would secure meeting of the established coefficient through artificially increasing both assets and liabilities. Similarly, it should be manifest in a drop in gross foreign indebtedness of the Slovak Republic up to U.S.$2 billion as well as a drop in exchange reserves of commercial banks. The NBS expects the foreign indebtedness to hit 10-11 billion Sk.

Under changes in monetary instruments, also the basis for formation of mandatory minimum reserves will be extended to include crown and exchange banks toward non-resident banks with effect from April 1, 1999 onward. In the case that favourable economic and monetary developments occur, the NBS does not rule out that there will be a progressive reduction in the rate of minimum mandatory reserves from current 9 per cent.

Having gone into effect on January 1, 1999, the reference currency - German Mark (DEM) was replaced with the new euro currency and at the same time the SKK/DEM exchange rate became as of the set out date a basis for monitoring of SKK rate developments in the following period. It is important that the NBS anticipates that rate developmentswill be relatively stable and does not yet consider more remarkable shifts, as the inflation rate goal would be lost for the central bank.