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Garanti Bank keeps 2016 Romania GDP growth fcast at 3.7%, expects BNR rate hike in 2018

Garanti Bank keeps 2016 Romania GDP growth fcast at 3.7%, expects BNR rate hike in 2018 Romania's economic growth. Author (SeeNews). License: all rights reserved.

BUCHAREST (Romania), December 6 (SeeNews) - Garanti Bank Romania, part of Turkish financial group Garanti, said on Tuesday it expects Romania's economy to grow by 3.7% in 2016, confirming its previous forecast issued in August.

Garanti also said that its expects Romania's central bank, BNR, to increase its key rate in 2018.

The main drivers of the Romanian economy in 2016 will remain IT&C and business support activities, the bank said in its latest quarterly macroeconomic report.

Also, Garanti expects consumption dynamic to revert to the levels before the various VAT cuts and salary hikes.

Romania cut general VAT from 24% to 20% in January 2016 and reduced VAT from 24% to 9% for some food items in June 2015.

In May 2016, Romania hiked the minimum gross wage by 19% to 1,250 lei ($295/ 278 euro) and increased wages in public healthcare by 25% in October.

Romania's annual economic growth decelerated to 4.4% in the third quarter of 2016 from 6.0% the quarter before, provisional data from the country's statistics board, INS, showed on Tuesday. Romania's national output expanded by a real 3.8% in 2015, compared with a revised growth rate of 3.0% in 2014.

According to Garanti Bank’s analysts, Romania’s macro fundamentals remain strong. However, there are two short-term domestic risks under the radar: the risk of a higher budget deficit next year driven by factors such as the increase in public wages but also other measures planned for 2017, and domestic uncertainties related to legislative changes that might impact the financial system.

“Each year comes with new challenges for both the global and the local economies. 2016 is no exception. The most important fact, however, is that Romania keeps its balance, continues its development and to attract investments. We foresee an optimistic outcome in the upcoming future”, Garanti Bank Romania's CEO Ufuk Tandogan said.

According to the Medium Term Budgetary Objective (MTO) agreed at the end of 2014 with the International Monetary Fund (IMF) and the European Commission, Romania must not surpass a structural deficit target of 3% of GDP. 

Romania's consolidated budget showed a deficit equivalent to 0.17% of the projected 2016 GDP in the first 10 months, finance ministry data show. The government targets a consolidated budget gap of 2.95% of GDP on a cash basis in 2016. The budget for 2017 will be made by Romania's new government, which will be formed after the regular parliamentary elections scheduled for December 11.

Regarding Romania's monetary policy, Garanti said it expects the central bank to increase its key rate in 2018, when inflation is expected to move above target. In its previous quarterly macroeconomic report released in August, Garanti said that BNR willl not hike the key rate until mid-2017.

"Headline annual inflation is expected to increase from current -0.4%in October  towards 2% until the end of next year, while the core inflation is expected to remain at around 1.2% in 2017," the bank said. 

Romania's annual consumer price deflation decelerated to 0.4% in October from 0.6% in September, latest data from the statistics office show.

At its last monetary policy meeting held in November, BNR maintained its monetary policy rate at record low 1.75%. BNR last changed its monetary policy rate in May 2015, when it cut it by 25 basis points from 2.0%.

For the banking system, the risk highlight falls on the mortgage default law and the Swiss Franc conversion law, which are currently subject to revision, Garanti said. However, the overall impact of these laws would be lower than similar actions in other countries, according to Garanti Bank’s macroeconomic report.

At the end of October, Romania's Constitutional Court said that the mortgage default law which restricting the banks' rights to seize assets from defaulters on mortgage loans is partly unconstitutional. Under the law, banks can seize from mortgage defaulters only the property for which the borrowers had received a loan of up to 250,000 euro ($283,000) but cannot claim any further payment.

Also at the end of October,  Romania's government challenged in the Constitutional Court the Swiss franc loan conversion law adopted by the parliament, which aims to help Swiss franc borrowers convert their mortgage loans into local leu currency at historical rates.

($=0.9395 euro)

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