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Central Bank raises key-interest rate for a third time this year

BNR Board yesterday raised the key interest rate by 0.5 pc to an annual rate of 9.5 pc, and decided to preserve the current level of compulsory reserves rates calculated to liabilities in local and foreign currencies of the credit institutions.

BUCHAREST – The Board of the Romanian National Bank (BNR) yesterday increased the key interest rate from 9.0 to 9.5 per cent, BNR informed by press release. This is the third time this year that BNR raises the key interest arte, having set it at 9 per cent on February 4, 2008 having already gone up from the 7.5 per cent to 8 per cent in January this year. At the same time, BNR decided it would keep the current rates of compulsory reserves applicable to liabilities in RON and in other currencies of the credit institutions. The compulsory reserve rate is 20 per cent of a bank’s liabilities in RON and 40 per cent of liabilities in other currencies. The central bank reiterates its determination to closely monitor the evolution of macroeconomic indicators and to assess their outlook in order for it to promptly adjust monetary policy tools to counteract inflationist pressures and to put disinflation back on the announced medium-term track as soon as possible and in a sustainable manner. ‘An analysis of the most recent statistics suggests an economic growth above expectations while domestic demand remains high, sustained by higher incomes and by the persistent fast expansion of lending to the private sector’ the press release further reads. BNR reminds that the annual inflation rate has grown to 7.97 per cent in February from 7.26 per cent the previous month, mainly triggered by the natural gas price rise and by the persistent pressure put n foodstuff prices by the poor agricultural production in 2007. BNR notes that its analyses reconfirm the outlook that the annual inflation rate in the following months will be above the upper limit of variation around the target as a result of the persistent pressures put by excessive domestic demand as well as a result of the prolongation of effects of various offer shocks (primarily fuel and food prices). According to the BNR Board, apart from strengthening monetary policies, implementing a restrictive mix of economic policies with a stress on tax and income policy components and intensifying structural reforms are crucial if we are to cause inflation to return to a descendent trend and stay like that, that also contributing to the prospects of a sustainable economic growth on a longer term. RON influenced by lasting risk aversion among financial investors The evolution of the RON exchange rate has been influenced by the lasting aversion to risk manifested by financial investors under conditions of persistent tensions on the international financial market, BNR notes. ‘In this context, the conduct of the monetary policy evaluated against the overall monetary conditions has continued to adjust its restrictiveness by elevating the key interest arte, by keeping a firm control over liquidity on the monetary market and by keeping a high rate of compulsory reserves’ reads the communiqué. The BNR decision to increase the key interest rate by 0.5 per cent did not support the appreciation of the local currency registered in the first hour of trading, and the reference exchange rate rose by 0.72 ban to RON 3.7155 / EUR. The next meeting of the BNR Board dedicated to monetary policies is scheduled on May 6, when the new quarterly report on inflation is also expected. Loans in RON become more expensive, with a limited impact upon the exchange rate The central bank’s decision will have as a result higher RON loan and deposit interest rates, but is expected to have a rather limited impact upon the evolution of the local currency because the measure had been foreseen by the market, say economic analysts. ‘The effect on the exchange rate will be almost zero because the higher interest rate was already included in the price. The Ron would have appreciated or depreciated only if BNR’s decision had been a surprise. In what regards the loan and deposit interest rates, those are bound to go up in the coming period’ Raiffeisen Bank Chief Economist Ionut Dumitru told Mediafax. He pointed out that he had expected the key interest arte to go up, but he thinks that BNR should have cut the compulsory reserves in RON because banks need their cash. On the other hand, BRD – Groupe Societe Generale Chief Economist Florian Libocor appreciates BNR’s decision not to alter its administrative levers, namely the compulsory reserves, but he disapproves of the higher interest. ‘I believe their decision to raise the key interest rate to be inadequate to the Romanian economy both with regards to the international context and with the state of play of the national economy (see the foreign deficit, the economy’s most important vulnerability). The measure may benefit lending in foreign currencies to the detriment of loans in the national currency’ Libocor said. Sursa: http://www.nineoclock.ro

Tags: monetary decision reserves compulsory interest bnr central brd