BUCHAREST (Romania), October 30 (SeeNews) – Romania’s central bank, BNR, is more likely to shave 25 basis points (bps) off its key interest rate to 7.75% at its last monetary policy meeting for this year but a decision to hold it at the current 8.0% should not be ruled out, analysts said.
Since the beginning of the year, BNR has cut the rate five times: to 10.00% from 10.25% in February, to 9.5% in May, to 9.0% in June, to 8.5% in August, and to 8.0% last month.
Romania's annual consumer price inflation slowed down to 4.94% in September from 4.96% in August and 5.06% in July.
Following are comments by local analysts polled by SeeNews:
ING ANALYSTS NICOLAIE ALEXANDRU-CHIDESCIUC AND VLAD MUSCALU:
“We expect the BNR to cut by 25 bps to 7.75%, less than the market consensus. Reserve requirements for hard currency may be cut by another five percentage points to 25%, while the ratio for local currency liabilities is likely to remain unchanged at 15%. After a period when key rate decisions gained in importance for banks and for the economy, we have gone back to the decision having little relevance (similar to late 2008/early 2009).
This is because currently there is a wide gap between money market rates and the key rate because of poor monetary policy implementation and too much focus on exchange rate control. Yet, as we said, this is likely to change as it is not sustainable and impacts the real economy negatively (accentuating the downturn and pushing unemployment higher).”
OTILIA CIOTAU, PIRAEUS BANK ROMANIA:
“We expect a 25 bps cut [of the key rate] and a cut in the ratio of the minimum reserve requirements on foreign currency-denominated liabilities. This is more important actually. BNR has already started cutting the [ratio of the] reserve requirements and it's clear that it needs to harmonise them with the requirements of the European Central Bank [...] In other countries the ratio is around 3.0-4.0%, so we still have work to do.
As for the key interest rate, our economy is relatively unstable. We expect a serious contraction of the economy in the fourth quarter because pretty much nothing was done with regard to the economy. Our forecast for the end of the year has been 7.75%.”
ROZALIA PAL, UNICREDIT TIRIAC BANK:
“On the longer term we expect further monetary policy loosening, given the continuous disinflation pattern this year and the central bank’s target band of 3.5% +/-1.0% that looks much more realistic now. Moreover, supportive of further rate reductions is the much improved current account position.
Still on the short term, for the November meeting we expect the bank to adopt a cautious monetary stance to support the local currency, holding the key rate at 8.0% amid further softening through MRR rate cut. Moreover, given that the money-market rates have been positioning in the last two weeks significantly above the key rate (with around 200-300 bps), a 25 bps cut would be unobservable for the market.”