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BNR to reduce monetary policy interest rate by 0.5 pc to 9 pc

On Tuesday, BNR is likely to reduce again the monetary policy interest rate by 0.5 per cent, to 9 per cent, within the context of inflation slowdown and GDP declining beyond expectations in Q1, according to most of the analysts, cited by Mediafax, who do not exclude an even higher decrease, up to 0.75 per cent.

Most analysts see likely a cut in the compulsory minimal reserve rate, mainly for RON liabilities. They believe that the relaxation of the monetary policy by BNR is required in order to stimulate the economic growth, whose prospects have worsened, and the slowdown of the inflation rate in the past months, as well as the stability of the exchange rate, enable, at this moment, such a measure.

"In Q 1, there was a contraction of the economy much beyond expectations and we have unfavorable prospects for the next quarters, and the current inflation slowdown is helpful", according to Nicolae Chidesciuc, senior economist at ING Bank Romania.

GDP reduced, in Q 1, by 6.2 per cent compared to the similar time period of the previous year and by 4.6 per cent as against the last three months of 2008, according to the revised data published by National Institute of Statistics, which indicated that the decline was triggered by the abrupt slowdown of activities in industry and in agriculture.

Chidesciuc anticipates a reduction in the monetary policy interest rate by 0.5 per cent, to 9 per cent, but he does not exclude a relaxation by 0.75 per cent.

Ciprian Dascalu, dealer at Millennium Bank Romania, also speaks about a more aggressive cut in the interest rate by up to 0.75 per cent.

A cut by 0.75 per cent in the basic scenario is anticipated only by BRD - Groupe Societe Generale chief economist, Florian Libocor, who sees such a decision as proper for the current context and he says that the recovery of lending is key to the resumption of activity in economy.

The cut in the interest rate for the monetary policy by 50 points up to 9 per cent is also anticipated by Catalina Constantienscu, economist at RBS Bank Romania, and by Ionut Dumitru, chief economist at Raiffeisen Bank Romania.

In his turn, Laurian Lungu, director in Macroanalitica, anticipates a cut by 0.25 to 0.5 per cent in the interest.

The banks must deposit, with the central bank, compulsory minimal reserves accounting for 18 per cent of the resources attracted in RON, including through deposits from households and from companies, maturing in less than two years. In case of foreign currency liabilities, the compulsory reserves account for 40 per cent for a similar maturity.

At the end of March, BNR decided to reduce to zero the rate of the compulsory minimal reserves for foreign currency liabilities maturing in more than two years, starting with the implementation period May 24 - June 23, 2009.

Regarding the exchange rate, both Lungu and Chidesciuc believe that the relaxation of the monetary policy may put pressure on RON depreciation.

 

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Tags: interest bnr policy monetary reduce rbs ing brd

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