BCR Note: Romania to receive EUR 900 mn from the IMF

The IMF considers that Romania is on a clear path to meeting its short and medium term fiscal goals. Improving the absorption of EU structural funds should be a top priority for the government. The issue of the domestic arrears should be further addressed by the government, while improving payment discipline of the state entities should take center stage. In our opinion the performance indicator on general government domestic arrears was missed again.

The IMF sees room for further monetary easing but continued cautiousness is needed in gauging the timing for it. The jump in inflation due to the recent hike in VAT is considered as temporary, while the banking sector is seen as liquid and well capitalized.

Assessment: We think the NBR will resume the monetary easing through cuts in the key rate and/or minimum reserve requirements if Romania reaches another agreement with the IMF and inflationary pressures subside. Consequently, we see the key rate at 5.75% at the end of 2011.

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