Decisions adopted by the Governing Board on 3 July 2007

1. At today's session, the Governing Board of the Bank of Slovenia established, on the basis of a statement from Dr Marko Kranjec, that his status is compatible with the posts of Governor and Member of the Governing Board of the Bank of Slovenia. Dr Kranjec will take up the post of Governor on 16 July.
   
2. June figures on price movements show that it is not only external factors – oil and oil derivatives prices, world food price increases, the one-off effects of euro introduction and seasonal influences, for example – that are having an effect on inflation. It is becoming clear that internal factors are also giving rise to price increase trends. Prices are rising more markedly in the non-tradable sector. Services have, in previous months, had an important effect on inflation, and theirs was the strongest contribution to June’s monthly price growth. The share of services in the harmonised June annual level of consumer prices rose to 42%. Core inflation (excluding fuel and unprocessed food), which in June rose to 3% from May’s figure of 2.3%, also demonstrates the decisive effect internal factors are having on current price growth. 
   Labour costs per unit of output show that we are gradually losing the relative competitive advantage we have built up in recent years in Europe. In the last year, several of our most important external trading partners in Europe have overtaken us. In light of this, wage claims that will lead to a deepening of the relative gap in competitiveness developments cannot be countenanced. The policy of keeping wage increases behind growth in productivity must be supplemented so that movements in labour costs per unit of output follow the changes occurring in the best performing economies in Europe. 
   Quarterly figures show that the general government deficit in this period is 2.2% of GDP. The strong cyclical growth in revenues creates the impression that fiscal policy is having a stabilising effect. Owing to high economic growth, the deficit is lower, as it was in the same period last year. The risk of overheating of the economy and the continuation of inflationary pressures is intensifying. The reasons for domestic inflation growth cannot be corrected using the ECB’s monetary policy.
   
3. The Governing Board of the Bank of Slovenia has been briefed on a review of preparations being made by banks and savings banks for the introduction of the new Basel 2 capital regulations. In addition to an assessment of the organisation and operation of projects, the Banking Supervision Department has also examined the status of bank activities relating to the first pillar of the new capital regulations, which concerns activities for the calculation of the minimum capital amount. Additional attention has been focused on examining the status of activities relating to the second (risk management and the assessment of required internal capital adequacy) and third pillars (disclosure) of the new capital regulations. 
   After an analysis of the findings of the first set of reviews, the general finding is that banks are aware of the importance of the changes to be introduced by the new capital regulations, and have therefore systemically begun to plan and monitor preparations, taking account of good practice for the implementation of important projects and the experiences they acquired as part of last year’s euro introduction project. In order to increase the efficiency of supervision, banks have in most cases embarked on a project-based method of work, and have actively involved management boards and internal auditing services. It is true to say of the majority of banks that they are currently chiefly focused on implementing requirements relating to the first pillar of the new capital regulations. However, the Bank of Slovenia’s expert services are of the opinion that banks are still not devoting sufficient attention to the requirements to be introduced by the second and third pillars of the new capital regulations; they have drawn attention to this and have given appropriate recommendations. Activities concerning preparations for the introduction of the new capital regulations are largely taking place in line with banks’ own internal plans. The Bank of Slovenia will continue to supervise and direct banks’ preparations for the introduction of the new capital regulations.