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BCR on: Central bank cut the key rate

The decision was widely anticipated (market consensus: 7%, our estimation: 7%). Central bank remains confident in the disinflation process and signals that an economic recovery through a sustainable revival of the domestic demand is needed at this moment.

So far the improvements in real economy were attributed mainly to the exit of Euro Zone countries from recession (higher external orders for Romanian industry), while domestic market lags behind in terms of demand. Today’s decision is supportive for the fixed income market.

The liquidity will increase and yields are expected to decline further, although to a lesser extent as compared to the last month (yields on the primary market fell by more than 200 bps since December, from 10% to under 8% at the recent auctions). An Eurobonds issue of EUR 1 billion is expected in the coming weeks.

After a sharp adjustment in 2009 to around 5% of GDP, C/A deficit is expected to stabilize at these low levels with positive effects upon RON and external financing needs. RON has recently strengthened to a one-year high of 4.07 following an improvement in foreign investors sentiment towards Romania.

The continuation of the agreement with the IMF and EC which is seen as a pledge for stricter fiscal and income policies as well as markets’ expectations for further cuts in the key rate played a key role. Yesterday Fitch upgraded Romania’s outlook to stable from negative and the decision came as natural in the present context.

There is a high probability that central bank will extend its monetary policy easing cycle at the next meetings and the key rate might stay at 6% at the end of 2010. Cuts in minimum reserve requirements are also possible with a view to improving further the liquidity in the market.

Sursa: http://www.bcr.ro

Tags: market central bcr euro

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