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Reactions to central bank's decision to raise key interest rate

The National Bank of Romania (BNR) decided on Monday, Feb. 4, to raise the key interest rate from 8 pct to 9 pct per annum, by a pace twice as high as the market would have expected.

Immediately after BNR made the announcement, the local currency, the leu, underwent a strong appreciation and the reference exchange rate posted by BNR on Monday decreased by 7.6 bani, to 3.6095 lei/euro. The key interest rate advanced two percentage points since October 2007, hitting the high attained back in summer 2005, at a time when analysts expect the inflation rate to rise in the coming months to 8 pct year-on-year. 'BNR had to do whatever stood in its power to cap the market's inflationist expectations, that are also fed by producers who point the finger to the exchange rate. It had to show determination in combating these expectations and did it. The steeper increase in the interest rate is also related to the recent depreciation of the leu,' commented president of Raiffeisen Asset Management, Mihail Ion. He does not believe that economy will slow down as an effect of the interest rate rise. 'Risks related to inflation - that penalises any economic activities - are higher,' he says. On the short term, BNR's decision will help the leu, the more so as the increase is above the expectations of most analysts, says Nicolae Chidesciuc, ING Bank senior economist. 'We'll have to see what happens on the medium term, given that fundamental problems persist,' he adds. Chidesciuc does not believe that BNR's actions are enough to temper the evolution of the foreign deficit and that adequate fiscal policy measures are also necessary. The higher key interest rate could slow down economic growth, but at the same time it could appease some of the macroeconomic imbalances - mainly inflation and foreign deficits - says president of the National Forecast Commission Ion Ghizdeanu. It's not the credits that cause inflation to rise, but the expansionist tax & budget policy, says director of the Group for Applied Economy (GEA) Liviu Voinea, cited by Bursa daily. Voinea considers that BNR cannot fight inflation all by itself and needs the authorities' help in the form of a narrower budget deficit. In turn, chief economist of the Romanian Commercial Bank (BCR), Lucian Anghel, says that BNR sent investors a positive signal. Following BNR's decision on Monday, Romanian bankers expect interest rates for credits and deposits to grow by as much as one percentage point in the coming three months and the leu to appreciate. Bancpost will definitely put up interest rates for loans and deposits and will soon announce the new figures, bank president Mihai Bogza told Business Standard. Bogza says the banks will promptly react to the central bank's action. Sursa: http://www.rompress.ro

Tags: inflation decision bnr interest bcr ing euro bnr

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