The monetary interest rate, which indirectly influences the cost of loans in Romanian currency granted by banks in the economy, was frozen at 5.25% a year in May of last year amid the crisis and amid internal political tensions, and later it was kept at this level because of inflationary pressures.
Annual inflation approached 6% in January, exceeding market expectations, but in February and March 2013 it slowed down, with the annual inflation rate falling to 5.25% at the end of the first quarter of 2013.
On the forex market the Romanian currency has appreciated visibly in the last few days, helped by the foreign currency sales of foreign players, with the EUR/RON exchange rate falling towards RON4.32-R04.33 to the euro.
However, the Romanian central bank will keep the key interest rate at 5.25% a year in
in Thursday’s meeting, analysts believe. As far as the minimum mandatory reserves are concerned, they will also be kept unchanged both for resources in Romanian currency and for foreign currency resources.
“BNR will keep the monetary policy at 5.25% on Thursday amid uncertainties over a
significant inflation decline starting in the summer months, amid a good agricultural production. Minimum mandatory reserves will also be kept unchanged at 15% on resources in Romanian currency and 20% for foreign currency resources,” says Eugen Sinca, chief analyst of BCR.
If BNR does not reduce its monetary policy interest rate, the exchange rate could even hover around the RON4.2 per euro mark this year. But this would not be advisable, because such an appreciation [of the leu] would not be justified by macroeconomic fundamentals and would induce vulnerabilities in the economy, especially through the financial-banking channel and through the channel of exports, believes Melania Hancila, chief economist of Volksbank.
Recently BCR changed its scenario regarding the central bank’s monetary policy and now expects a first reduction by 25 basis points at BNR’s last meeting this year, on November 5. Two more cuts of 25 basis points each could follow in the first quarter of 2014, which would place the interest rate at 4.5% a year in March 2014. The relaxation of the monetary policy could then continue with a reduction of the mandatory minimum reserves for resources in lei, Sinca estimates.
RBS Bank in turn expects a reduction of the monetary interest rate by 25 basis points towards the end of 2013 and for the adjustment to continue into the beginning of 2014 if the inflation rate returns within the targeted interval sooner than now anticipated and if inflation expectations are for the inflation rate to be kept within the targeted interval.
Hancila believes BNR will reduce the monetary policy interest rate by at least 25 basis points after the annual inflation rate falls below 5%, especially since the leu is on an appreciation trend.
UniCredit Tiriac Bank expects 2013 inflation to be around 5% (up from 3.3% in 2012), around 5-6% in the first part of the year, but declining towards 3.8% in December (above the 2.5% target +/-1 percent). So the bank expects the interest rate to be kept throughout 2013, with a potential decline expected in 2014.
(English version by Daniela Stoican)