Decisions adopted by the Governing Board on the occasion of its 328th regular meeting on 2 March 2006

At the meeting on Thursday March 2, the Governing Board of the Bank of Slovenia reduced main interest rates of monetary instruments, effective on 3 March 2006. Interest rate of 60-days tolar bills is reduced to 3.5%, lombard loan to 4.5% and 7-day temporary purchase of securities to 3.5% p.a., all of them by 25 base points. Interest rates of buy/sell FX swap and sell/buy FX swap are reduced by 50 base points to 0.75% and to 0.25% p.a. respectively. The change reflects adjustment of interest rates, along the lines of nominal convergence prior to the adoption of the euro.

Based on analysis of economic trends, the Governing Board considers monetary policy stance to be appropriate. The level of interest rates is in line with the stability of the nominal exchange rate of the tolar against the euro, while current price trends and inflation expectations are in line with the medium-term price stability objective. With the key ECB interest rate having risen again, the convergence of nominal interest rates is continuing. With the rise in the reference value for the price stability convergence criterion to 2.6% in January, and the decline in the 12-month average of annual inflation as measured by the harmonised index of consumer prices to 2.4% in February, Slovenia continues to meet the price stability criterion for the introduction of the euro.

The fulfilment of the convergence criteria remains sustainable, as all the macroeconomic balances have been maintained. According to provisional figures, the public finance position improved last year, the central government deficit remaining at 1.4% of estimated GDP. The external balance remains sustainable as well. Provisional figures show last year's current account deficit at 0.9% of estimated GDP, lower than expected.

The latest estimates indicate that economic growth in Slovenia could have exceeded 4% in the final quarter of last year. The high positive contribution by net exports recorded in the first three quarters is likely to have further decreased, but should nevertheless have remained significant. Household spending is likely to have increased slightly in the final quarter, while consumer expectations remain optimistic. Although a change in the timing of bonus payments meant that there were major monthly fluctuations at the end of last year, growth in gross wages remains relatively low, and averaged 4.9% last year. The fastest wage growth was recorded by the electricity, gas and water sector. Sound performance of companies in the sector and the above average wage growth indicate that the levels of prices for their products and services are appropriate and that additional pressures towards price increases are not justified.