Monetary policy meeting: Key rate unchanged

The analysis of the statistical indicators show the persistence of the deficit of aggregate demand, the maintenance of the C/A deficit at sustainable levels and the negative annual real dynamics of non-government lending, according to the press release issued by the NBR. The current inflation forecast of the NBR reveals the prospects of a resumption of the disinflation process in early-2011. Disinflation could gain speed once the first-round effects of the hike in VAT dissipate. The risks surrounding NBR's inflation forecast are related mainly to factors outside the central bank's influence – adjustments of administered prices, the continuation of the fiscal consolidation process and structural reforms as well as the development of food and commodity international prices.

We maintain our forecast for end-2011 key rate at 5.75% which is supportive for government bonds. Risks come from an extended period of high food prices on global markets coupled with a low domestic supply in agriculture due a possible summer drought.

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