Key rate unchanged

According to the press release, the disinflation is expected to continue in the period ahead, so that annual inflation rate will near the target. A good agricultural output will counterbalance the slow down in economic recovery in 2H11, amid worsening global risk appetite and increased uncertainties regarding the Eurozone sovereign debt crisis. An interesting point in the press release issued by the NBR is a gradual adjustment of the monetary policy stance in the future, in line with the consolidation of disinflation but also with the uncertainties related to developments in the external environment, capital flows, administered and volatile prices. The volatility of the FX rate will remain moderate.

We foresee a flat key rate in 2011-12 due to a deteriorated global risk assessment and uncertainties surrounding the orientation of fiscal policy in the aftermath of the parliamentary elections scheduled for 2012. At the same time, we do not rule out a cut in RON minimum reserve requirements that would support RON lending at the expense of FX lending.