Bank of Slovenia for 1998
Bank of Slovenia
The intermediate target of monetary policy of the Bank of Slovenia was accepted by the Governing Board of the Bank of Slovenia at its 157th session on 24 March 1998.
For the monetary aggregate M3 the statistical definition will be monitored. The annual increase is determined for the period from the last quarter average of 1997 to the last quarter average of 1998.
Due to a methodological break in the last ten days of December 1997 (the inclusion in M3 of time deposits of banks in liquidation), the value of the base period, which will be taken into account when monitoring, was raised by 11.6 billion Tolars.
The intermediate target of monetary policy of the Bank of Slovenia for 1998 was an annual increase of the monetary aggregate M3 in the range of 18-26 per cent.
Pursuant to the Law on the Bank of Slovenia, the main responsibility of the bank is to maintain stability of the national currency. In setting the intermediate target of monetary policy for 1998, the bank made assumptions regarding certain parameters that are affected by policies other than monetary policy, but which also influence the stability of the Tolar and the price level. In the case of greater divergence from these assumptions, within the year the bank will be in a position to decide whether to continue to pursue the target at the cost of various negative effects, or whether to adjust it to new conditions.
The intermediate target of the bank for 1998 is based upon annual projections of the Government of the Republic of Slovenia in the draft document Joint Assessment of Medium-term Economic Policy Priorities of Slovenia. This is to be signed between the Government and the European Union (EU) and will become the basic document of the economic policy of Slovenia for 1998 and the following years. The basic parameters of this document which bear upon monetary policy intentions are the following:
Assuming that the consumer price index (CPI), which is the measure of real wage growth, will, as last year, increase two to three percentage points more than the price of tradables, which basically follow exchange rate dynamics, this will again produce an approximately equivalent higher growth of wage costs than revenues in the tradable sector (but not in enterprises and institutions of the Government and the public sector and in the various protected industries). This will cause at least an equivalent drop in export competitiveness, if it is not offset by further reductions in employment, which is, however, not anticipated in the Government's projections. Monetary policy instruments are not effective in this area and the Bank of Slovenia can only point out the development and social cost of certain policies.
Monitoring of the target
The Bank of Slovenia will, at mid-year, publish an estimation of current developments and of eventual deviations from the assumptions and conditions set out for the target of monetary policy (mainly concerning the growth of controlled prices and government foreign borrowing), as well as for the pursuit of the final policy goal, ie, stability of the Tolar and the gradual reduction of inflation to European levels.
Reproduced from the Bank of Slovenia's Website