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National Bank might further raise key interest this year to at least 10.5 pct

The National Bank of Romania (BNR) might further raise the monetary policy interest rate to at least 10.5 pct this year, considers Citibank Romania analyst Ilker Domac, who expects inflation to hit 6.8 pct at the end of the year.

According to the latest central bank estimation, the annual inflation rate should be 6 pct in December 2008, but BNR chief economist Valentin Lazea said recently that this figure might be revised upwards in the institution’s new quarterly report on inflation due on Monday, August 4. "

Economy overheating, high inflationist pressure and poor support from the fiscal policy are enough reasons to further tighten the monetary policy. Therefore, we do not shut out new steps to supplement the key interest this year to 10.50 pct or even more by the end of 2008,” added the Citibank analyst.

He says that "the further appreciation of the local leu at a time when the current account deficit is heading towards 14 pct of the GDP is a risky strategy that would not enforce the credibility of the inflation-targeting process." "We believe that there are three major reasons to further put up the key interest rate. The first – persisting pressure from the part of demand in excess which is a serious reason of concern, especially in the light of the widening external imbalance. In the second place, the ascending trend of basic inflation since August 2007, which demonstrates that inflationist pressure remains high. In the third place, chances are low that the fiscal policy responds vigorously ahead of general elections," notes the Citibank Romania economist.

The central bank Board announced on Thursday that it has hiked the key policy rate by 25bp to 10.25 pct.

Sursa: http://www.actmedia.ro

Tags: inflation policy interest further might bnr

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