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Analysts anticipate a drop by 0.5% of the BNR monetary policy interest

The meeting for monetary policy on Tuesday, 29 September will be the last where the Board Council of the National Bank will gather under the present form. On 10th October the mandate as governor of Mugur Isarescu is over and the leadership will be changed in its turn. The analysts anticipate a decision connected to the reduction of the key interest by 0.5% up to 8% as the same time with a possible drop only of the compulsory minimum reserves for the foreign currency reserves.
Two scenarios for an atypical meeting
Under these conditions, the decision to be taken on Tuesday is difficult to anticipate. On the one hand, the meeting of 29 September could see the BNR leadership take an attitude of expectation; on the other hand they should continue with interest reductions, with a similar rhythm to the present one, as Lucian Croitoru, the central bank governor adviser, expected,
In the previous monetary policy meeting, the one on 4th August the Board of the central bank decided to drop the key interest from 9% to 8.5% per year, as the analysts expected, but they surprised the market by reducing the compulsory minimum reserves for foreign currency reserves with lower maturity than two years at 30%. They kept, in exchange, the compulsory minimum reserves for lei reserves at 15%. Since the beginning of 2009, BNR lowered the key interest by 1.75 percentage points from 10.25% to 8.5% per year.
5 percentage points reduction
The analysts consider that the need to support the Romanian economy by reduced interests as well as the desinflationist tendency will make the BNR leadership decide on Tuesday the reduction of the monetary policy interest by 0.5% at 8%.
Thus, the head economist of BCR Lucian Anghel showed that, from the point of view of inflation, decisions to reduced the key interest by 0.5% are to be expected. “ If we have a look at the evolution of inflation and we add the three percentage points, although there is no certain rule, it would be normal the central bank decides to reduce the interest” Lucian Anghel says. The head economist of BCR considered that August, from the point of view of inflation was the most difficult month of the latest period with an annual rate under expectations. The annual rate of inflation dropped in August to 4.96% against July the consumption prices dropped by 0.19%. “ On the other hand, if the National Bank is worried by the evolution of the exchange rate or considers the level of liquidity is high, it is possible not to operate any interest reduction” the BCR head-economist said.
He considered that the Romanian economy needs lower interest. “ We haven’t left the recession yet and the Romanian economy still needs support” Lucian Anghel said. According to his opinion, irrespective of the decision taken by the monetary policy meeting on Tuesday, 29 September, the decreasing trend of the interest rates will be kept as a result of inflation evolution.
In his turn, the head economist with Raiffeisen Bank Ionut Dumitru expects the National Bank to decide a reduction of the key interest by 0.5%. “ We had two months with deflation, so, from this point of view, the BNR confort is high enough” Ionut Dumitru said. At the same time, the head-economist of Raiffeisen Bank considered it was possible to have compulsory minimum reserves for foreign currency reserves reduced and those for lei kept at the same level, as a result of good liquidity in the domestic currency.



Tuesday, September 29, 2009