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Key rate could remain unchanged

Romania’s National Bank (BNR) could maintain the key interest at the current level during its May 6 meeting, according to financial market analysts. BNR’s Monetary Policy council will meet to examine the latest macroeconomic evolutions and whether the monetary policy rate needs to be changed. Currently, central interest rate is 9.5 percent, which represents a maximum for this year, economists say.

Romania has the highest key rate in all European Union member states.Prices rose by 8.63 percent in March, compared to the same time last year, according to National Statistics Institute (INS). The current inflation rate is the highest in the past two years and two months. Also, compared to February 2008, prices rose by 0.67 percent in March. Analysts say that March is represent the peak of inflation for this year. *** The rate of key interest went up from 9.03%/year in April to 9.50% in the fifth month of 2008, equal level to that of monetary policy interest, the National Bank of Romania announced on its internet page.The central bank calculates the key interest under the form of average betweem the intervention interest of the central bank over the previous month. Thus, for May 2008, the level of key interest rate of the National Bank of Romania is 9.50%/year and the BNR decision is in accordance with the statute of the central bank and keeps account of the macroeconomic and recent monetary evolution. The key interest announced for May is 3 percentage points over the one in August 2007, which was 6.10% as the minimum level of the last years. But during that period, the central bank sterilized the liquidity excess for an interest “ of the market”, coming from different supplies, while at present BNR pays the banks an interest equal to that of monetary policy. The present level of key interest is the highest since August 2005 when the central bank decided to lower the key interest from 12.50% to 8.50%/year. The following meeting of monetary policy takes place on Tuesday, 6 May, and the largest part of the market expects BNR to keep the key interest at the level of 9.5%.Some analysts do not exclude an increase by 0.25 percentage points as a warning for the inflationist pressure. BNR could interrupt the series of key interest increase The key interest could be kept at the present level of 9.5%/year under the conditions where during the meeting on Tuesday, BNR will consider that the present level is sufficient to stop the deterioration of inflation. Energy prices and possible salary increase in the electoral period are among the main dangers which threaten the increase of inflation, according to specialists. On Tuesday, 6 May, the board of the central bank comes together to take monetary policy decisions. The stake for an increase of the key interest could be the positive impact that the measure would have on inflation, both through loans and through the appreciation of the leu. BNR stated its recent worry that the appreciation of the national currency could lead to the deepening of the current account deficit through the boosting of imports and stopping of export, so that on Tuesday the central bank could be moderate as regards the increase of interest, the ING Bank Romania analysts consider. ”BNR announced that we will see levels of two figures for the interest, so that, although there is a need of interest increase of almost 0.5 percentage points is possible to have an increase of 0.25 up to 9.75%/year, which would be a warning rather than an impact on the monetary market" Nicolae Chidesciuc, the head economist at ING Bank Romania said. The increase of the key interest will depend on the evolution in the future of the main objective of BNR, inflation. "The annual rate of inflation reached in March 8.6% and at the beginning of the year we anticipated that this would be the peak of 2008. Then there were increases of almost 10% for gas as well as the increase of electricity tariffs, which determined the revision of annual inflation prognosis for the following months, expecting a peak of the index of 8.9% in July” Chidesciuc said. Ciprian Dascalu, trader with Millenium Bank Romania, considers that a possible increase of the key interest depends on the evolution of prices, which includes prices for energy, the only which could create pressure on inflation. The fact that until the present there were possible increases of the prices, on the part of some actors on the market, there is not sufficient argument to count on an increase, Ciprian Dascalu says, who considers that BNR will keep the level of the key interest at 9.5%/year. The Millenium Bank analyst considered that it is possible that inflation pressures could appear over the second part of the year, generated by possible increase of income during the electoral period. In their turn, the Raiffeisen Bank Romanian analysts anticipated in the most recent weekly report that BNR will keep the present level of the interest – 9.5% - without excluding a possible increase of 0.25 or even 0.5 percentage points. One of the arguments for the key interest at present level would be that starting in October 2007, BNR operated 4 increases which meant together 2.5 percentage points over the key interest, level which could be considered by BNR as sufficient to stop inflation. On the other hand, at present, the high level of minimum compulsory reserves which BNR imposed on the banks for their lei and foreign currency liabilities, according to Raiffeisen. On the other hand, the level of inflation and the quick increase of salaries which threaten to start the vicious circle of income-inflation could be an argument for the increase of interest, the Raiffeisen Bank analysts consider. Sursa: http://www.actmedia.ro

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