Romanian Ctrl Bk Household Lending Rules Could Slow Dn Econ Growth In 2009 – BCR

Analysts added a positive effect of the central bank’s rules would be a narrowing of the country’s trade deficit on the segment of fast moving consumer goods.

"If the central bank’s decision overlaps the already existing positive trend, we expect a lowering in Romania’s external vulnerability, which is the main reason for concern among ratings agencies and international analysts. What remains to be seen is whether measures will have a bigger effect on consumer lending, which has boosted household consumption over the past quarters, or whether it will have a bigger impact on mortgage lending," the report noted.

The central bank’s new lending rules, adopted in August, will have a major impact on foreign currency lending in terms of debt ceilings, which are to be calculated factoring in the highest possible interests and fees and the worst-case scenario for currency exchange rates.

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Under the new household lending rules, commercial lenders will calculate debt ceilings taking into account incomes higher by no more than 20% than the applicant stated with fiscal authorities in the previous year.

"The new rules might have a bigger impact on retail lending than the central bank’s successive monetary policy rate increases,” the report noted.

Analysts expect a more prominent slowdown in retail lending compared to previous years and consider credit growth would have slowed down even without the central bank’s measure, due to the base effect.

"Under a more pessimistic scenario, these measures could lead to a more abrupt slowdown in economic growth, while a more neutral scenario indicates a moderate slowdown,” BCR analysts said in the report.

The central bank’s lending risk measures and this year’s economic growth could prompt BCR analysts to revise down forecasts for 2009 economic growth from their current estimate of 6%. BCR analysts see a gross domestic product growth of 8.3% this year, on a positive third quarter economic growth outlook driven by good farming output.

In the fourth quarter of the year, services and constructions may be affected by the central bank’s restrictive monetary policy and ongoing turmoil on international financial markets, analysts said.
BCR analysts said Romania’s annual inflation will lower considerably in August, and an optimistic scenario even sees deflation.

"Lowering international oil prices, a rich domestic supply of food products, the monthly appreciation of the Romanian leu will have a positive influence on inflation. September might also bring a considerable reduction in inflation," the report noted.

Analysts see inflation at 6.2% this year and 4.5% in 2009.