BUCHAREST (Romania), September 28 (SeeNews) – Romania’s central bank, BNR, is expected to slash 50 basis points (bp) off its key interest rate on Tuesday to reflect continuing disinflation and frozen bank lending, analysts said.
Local analysts expect BNR to cut its monetary policy rate from the current 8.5% to 8.0% at its rate-setting board meeting due on Tuesday. Since the beginning of the year BNR has cut the rate four times, to 10.00% from 10.25% in February, to 9.5% in May, to 9.0% in June, and to 8.5% last month.
Romania's annual consumer price inflation slowed down to 4.96% in August from 5.06% in July and 5.86% in June.
Following are comments by local analysts polled by SeeNews:
ING ANALYSTS NICOLAIE ALEXANDRU-CHIDESCIUC AND VLAD MUSCALU:
“We expect the BNR to cut by 50 bp to 8.0% in line with market consensus. Reserve requirements for hard currency may be cut by another 5.0 pps [percentage points] to 25%, while the ratio for local currency liabilities is likely to remain unchanged at 15%.
The cut of 50 bp is priced in, so its impact on either money market rates or on the RON [the Romanian leu currency] should be rather limited. It would be important to see whether or not the central bank suggests we should expect further key rate cuts. Moreover, given the BNR’s ability to control the exchange rate, even a reduction larger than 0.5 pps should not hurt the local currency too much. Once fiscal policy enters a restrictive path we should expect further monetary policy relaxation. As we expect this to begin in early 2010, we see the monetary policy rate falling even below 7% in the first part of 2010.
We revised our inflation forecast even lower for 2009 (we now see annual inflation at 4.8%) and we forecast a low of 4.3 - 4.4% in October 2009. […] It might be the case we could shift for another 50bp cut at the November meeting vs our current forecast for 25bp cut in the monetary policy rate. Even in a positive scenario of further falls in inflation, the central bank has to maintain its prudent approach due to the fact that monetary policy is the only component of the policy mix which has not lost its focus (both wage and fiscal policies did not show the necessary adjustments so far).”
ROZALIA PAL, UNICREDIT TIRIAC BANK:
The still high interest rates and frozen lending activity, coupled with continuing disinflation pattern, will prompt a further 50 bp rate cut at the central bank's September meeting. It will keep the rate at 8.0% until the year's end in an attempt to support the local currency.
IONUT DUMITRU, RAIFFEISEN BANK IN BUCHAREST:
“Given the rapid deceleration of economic activity and the clear downward trend in the inflation rate, we think the BNR would ease again the stance of the monetary policy. So, we think that the BNR might cut again the key rate by 50 bp as it did at the last three monetary policy meetings. Also, a cut in banks’ minimum reserve requirements for FCY [foreign currency] is not excluded.”