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Oxford Economics: BNR will reduce monetary policy interest rate to 5.5%

The National Bank of Romania (BNR) will reduce the monetary policy interest rate from 7.5% at present to 5.5% at the end of the year, but that relaxation would be partially attenuated by fiscal constrictions implemented by the government within the program with IMF, Oxford Economics analysts anticipate.

'Having in view the dimension of contraction if economic activity, the central bank had the possibility to reduce the monetary policy when political tension dropped, and the program with IMF was to be resumed. As a result, BNR reduced the monetary policy intrest rate by 0.5% to 7.5% on 5 January, and it could operate a new drop of 0.5% at the beginning of February', the January report of Oxford Economics shows.

Analysts note that the inflation rate was 4.7% at the end of 2009, over the superior limit targeted by BNR (4.5%) mainly because of higher excises for tobacco and alcohol, and anticipate that the disinflation process would win ground in 2010, being backed by the recovery of the leu.Oxford Economics anticipates that the inflation rate will be 3.4% in 2010 and 3.6% next year.

'The relaxation of monetary policy in 2010 will be partially compensated by the harsher fiscal policy which the government implements within the program with IMF. The Fund continues to recommend a fiscal correction of 2-2.5% of GDP in 2010, for the reduction of budget deficit under 6% of GDP', the report shows.

Oxford Economics Analysts note that 2010 began with a positive note, with the approval of budget by the Parliament, with IMF which seems disposed to begin delivering installments again in February and that of the central bank which resumed the process of monetary policy relaxation.Indicators seem to suggest that recession was over three months ago, when GDP could have grown by 0.5% compared to the third quarter, according to data adjusted every season, Oxford Economics shows.Analysts anticipate that the process of economic recovery sill be gradual and a GDP increase of 0.9% will be recorded in 2010 and 4.9% in 2011.

At the same time Oxford Economics foresees that Romania will have in 2010 a budget deficit of 5.7% of GDP, which means it will fulfill the target established with IMF.The report shows that fiscal progress is crucial for the investors' confidence and the reverse of the trend is fiscal progress, which depends on the capacity of the new administration to implement the 2010 budget as well as the laws on the reform of the pension system. More political instability remains the main risk, according to the report. As for the current account deficit, analysts anticipate that the imbalance will be 5.3% of GDP in 2010 and 7.1% of GDP in 2011.

Sursa: http://www.actmedia.eu

Tags: fiscal analysts which policy monetary economics bnr reduce oxford

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