BNR’s decision is in line with market expectations, a drop in interest rates for deposits and credits being expected.
The Administration Board of the National Bank of Romania (BNR) has decided yesterday to cut the monetary policy interest rate by 0.5 percentage points to 6.5 per cent, the lowest level in history, and to maintain rates of the minimum reserves requirement for RON-denominated liabilities at 15 per cent and for foreign currency-denominated liabilities at 25 per cent. The decision to cut the monetary policy interest rate to 6.5 per cent comes into force today. The Central Bank has reiterated that it seeks the proper management of liquidity in the banking system.
‘Although reporting obvious drops, the average interest rates for new deposits and credits remain relatively high compared to the monetary policy rate’s level, despite the significant improvement of liquidity in the banking system,’ BNR writes in a press release.
At the same time, BNR pointed out that it will continue to keep a close eye on the internal and global economic developments so as to ensure the attainment of its price stability and financial stability goals by adapting its instruments against the backdrop of fulfilling the commitments taken in the agreements signed with the European Union, the International Monetary Fund and other international financial institutions.
Analysts: Decision reveals preoccupation with exchange rate
The BNR decision was anticipated by most economic analysts that had foreseen that the Central Bank will lower the monetary policy interest rate by 0.5 percentage points in order to back the economic recovery and crediting but also in order to ease the appreciation pressures exerted on the RON. The analysts consider that the reduction of the monetary policy interest rate will represent a strong stimulus for the faster reduction of interest rates for credits and will ease the appreciation pressures exerted on the RON.
‘I believe that the main argument for this reduction was the inflation rate’s evolution in line with the outlook and with the national currency’s appreciation. (…) The fact that the reduction stood at 0.5 per cent, not 0.25 per cent, shows preoccupation with the exchange rate,’ Ionut Dumitru, Raiffeisen Bank chief economist, stated for HotNews.ro. The EUR continued to appreciate at the BNR exchange rate after the Central Bank lowered the monetary policy interest rate, with the exchange rate climbing by RON 0.0022 as against Friday to RON 4.0704/EUR. The USD lost more than RON 0.02, reaching a rate of RON 3.0204/USD. In his turn, Ilker Domac, the head of Citi’s Turkey and South-East Europe analysis department, considers the still weak economic demand and the RON’s appreciation tendency leaves room for another reduction of the key interest rate following yesterday’s move, namely a reduction of 0.25 percentage points in May. The ING Romania analysts expect the monetary policy interest rate to stop at 6 per cent this year, with BNR set to resume hiking the interest rates in January 2011 as a consequence of inflationary risks. ‘We do not share the view that the key interest rate could go below 6 per cent this year. In fact, we expect it to start rising in January 2011,’ an ING report reads.
The ING analysts estimate that the RON’s appreciation will continue in the following period, the exchange rate set to drop to RON 4/EUR in April, however the trend will be reversed a few months from now against the backdrop of an economy that remains weakened. In their turn, the brokers consider that in time the interest rate’s reduction will lead to liquidity growth on the stock market.
