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January 28, 2023

BNR cuts key interest rate from 5 pc to 4.5 pc a year`

The prospect of reaching an agreement with the IMF will boost the pace of structural reforms, Governor Isarescu says
The Board of the National Bank of Romania (BNR) decided Monday to slash the key interest rate from 5 pc to 4.5 pc a year, more than expected by financial analysts which anticipated a drop to 4.75 pc per annum, while the Central Bank maintained the cash reserve ratios, Mediafax reports. The BNR Board also adopted the quarterly report on inflation, which will be made public Wednesday in a press conference.
The majority of financial-banking analysts yesterday believed that BNR will cut the monetary policy (key interest) rate from 5 pc to 4.75 pc and will keep the minimum reserve requirement ratios unchanged both for RON and foreign currency. Other respondents in a poll expected the Central Bank to keep the key interest steady at 5 pc, the association informed Thursday. Estimations for the end of 2014 range between a minimum 3.5 pc and a maximum 4.50 pc.
The minimum reserve ratios on RON-denominated liabilities might be kept at 15 pc in 2013, then reduced to 12 pc until the end of 2014. The reserve ratios for the liabilities in foreign currencies might be kept at 20 pc both in 2013 in 2014, according to the majority of respondents. BNR lowered the key interest rate on July 1 by 0.25 pc, from 5.25 pc to 5 pc, the first decrease since March 2012, along with the Lombard rate from 8.25 pc to 8 pc a year. Its Board also maintained the minimum reserve ratios (RMO) for liabilities under two years, at 20 pc in foreign currency and 15 pc in RON.
BNR Governor: Net exports represented the driver of growth in the first half of the year
Net exports represented the driver of growth in the first half of the year, but one can notice a quasi-stagnation of private consumption, BNR Governor Mugur Isarescu said yesterday, during the press briefing that followed the meeting of the BNR Board. He added that the latest macroeconomic data evince the evolution of inflation in line with the previous forecasts made by the Central Bank, with the perspective of staying within the interval associated to the target, by dissipating the statistic effects of the offer shock which occurred in the summer of 2012. Furthermore, the prospect of reaching a new preventive agreement of external financing with international institutions is capable to consolidate the stability of the macroeconomic framework and to boost the pace of structural reforms, thus strengthening the resistance of the Romanian macro-economy to external shocks. The adjusted CORE2 inflation rate saw a consolidation of its downward path, its annual rate coming in at 2.85 per cent in June 2013 versus 3.03 per cent in March and 3.25 per cent in December 2012. The annual inflation rate measured by the Harmonised Index for Consumer Prices, a relevant indicator to ensure EU?wide comparability and to assess the degree of convergence with the European Union, ran at 4.5 per cent in June 2013, similarly to the preceding months.
Nevertheless, final consumption nearly stalled, while the real annual dynamics of loans to the private sector have stayed in negative territory. Stronger volatility in investors’ risk appetite and the persistence of uncertainties surrounding economic activity in Europe and elsewhere temporarily entailed wider fluctuations in the leu exchange rate.
Moreover, the fact that interbank money market rates and yields on government bonds have recently been close to or even below the policy rate points to the consolidation of the monetary policy impulse transmission. However, the pass-through of the policy rate cut to interest rates on new corporate and household loans in domestic currency remains relatively slow.
Capital Economics: Interests will remain higher than in countries with a much lower need for financing
The Central Bank (BNR) might reduce the monetary policy interest to 4 pc until the end of the year, from 4.5 pc now, estimates the British research company Capital Economics, after the surprise-decision made by BNR Monday to slash the key interest from 5 pc to 4.75 pc. The high financing need of external markets and the high indebtedness level in foreign currency represented in the past major obstacles for relaxing the monetary policy, Capital Economics explains.
“The high need for external financing still represents a reason for concern and means that interests in Romania will remain higher than in countries like the Czech Republic (where financing needs are much lower). Two factors however calmed immediate fears. First, the financial conditions of the euro zone improved, and second, the government reached a EUR 4 bln preventive stand-by agreement with the IMF,” reads the report made public by Capital Economics. From an annual rate of 5.4 pc in June, the inflation might drop into the interval targeted by BNR, of 2.5 pc plus/minus one percent point, as early as in the third quarter, comment the British analysts. Capital Economics also mentions the momentum gained by the activity of the industrial sector, driven by export orders, but contrasting with the decline of demand, especially in the consumption category, on the local market.

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