Romania’s Ctrl Bk Likely To Cut Key Rate By 0.5% - Analysts

Romania’s central bank is expected to cut its key interest rate by 0.5% to 9% Tuesday, on a milder inflation and a deeper-than-anticipated drop in the GDP in the first quarter, analysts said Sunday.

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Analysts believe a more relaxing monetary policy is essential to stimulate the economic growth, whose perspectives worsened, while the tempered inflation rate in the recent period and the stability of the exchange rate make such relaxing policy possible.

“The economy saw a much sharper contraction than expected in the first quarter and the perspectives for the coming quarters are negative, while the tempered inflation is helpful right now,” said Nicolaie Chidescius, senior economist with ING Bank Romania.

Most of the analysts polled by Mediafax believe the central bank might cut its key interest rate by up to 0.75% and they do not rule out a drop in the minimum mandatory reserve rate either.

Such a decision would be adequate in the current context, said Florian Libocor, chief economist with BRD-Groupe Societe Generale.

Libocor said Romania’s lending must be revived for the economy to resume its development.

According to Laurian Lungu, manager with Macroanalitica, the central bank will cut its key rate by 0.25% - 0.5%.

“The inflation is on a downward trend, at a rather consistent trajectory, but the decrease in the economy is also to be considered. It is most likely we will see a 4% contraction of the GDP, Lungu said.

Romania’s GDP fell 6.2% on the year in the first quarter. In seasonally adjusted terms, first-quarter GDP was down 4.6% in real terms compared with the fourth quarter of 2008, on a sudden drop in activity in industry and agriculture.

In May, Romania’s central bank cut its key interest rate by 0.5% to 9.5%, in a move to ensure a sustainable revival of the lending.

The bank kept the minimum required reserves ratio on both leu-denominated and foreign currencies liabilities of credit institutions unchanged at 18% and 40%, respectively.

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