Romanian Ctrl Bk Might Add 0.5 Percentage Points To Main Rate – Analysts

Three of the four founding members of the Romanian Association of Financial Banking Analysts (AAFBR) support the 0.5 point hike. Thus, chief economists within Romania’s largest lender BCR and Raiffeisen Bank, Lucian Anghel and, respectively Ionut Dumitru, as well as the investment director within Interamerican Pensii, Radu Craciun, anticipate a climb of the main rate to 9.5%, while BRD chief economist Florian Libocor expects the current 9% level of the main rate to be maintained.

Aside from the AAFBR analysts, other economists are also anticipating an increase of the main rate in the central bank’s Wednseday meeting, estimations ranging from 0.25 to 0.5 percentage points.

"I expect an increase in the main rate because inflation persists, the real interest rate is too low and the bank needs to signal the market that it is returning inflation within the variation boundaries," Radu Craciun told MEDIAFAX.

In order to anticipate the central bank’s March 26 decision, the situation needs to be seen from two angles of comparison – with the external environment and with the needs of the internal environment, said Florian Libocor.

"In comparison with the external environment, the interest rate differential is more than comfortable for Romania - 675 base points in the Fed ratio (the difference between the main rate applied by the American Federal Reserve, 2.25% and the Romanian central bank’s main rate, 9%) and 500 base points in the ECB ratio (the difference between the main rate applied by the European Central Bank, 4% and the Romanian central bank’s main rate)," said the BRD chief economist.

He added that three essential aspects can be observed regarding the internal environment needs.

Thus, the real main rate reached 103 base points, but a positive outlook, counting on a return of inflation to a descending trend, is reconfirmed by the market.

In addition, the main rate grew by 200 base points and the entire effect will not be felt sooner than the end of the first half of the year, and measures connected to the correction of the external deficit will be more efficient if the exchange rates for the leu remain near the current level, as opposed to a strengthening of the leu, according to the BRD chief economist.

For the end of the year, the AAFBR estimated average main rate reaches 9%.

Thus, Raiffeisen Bank chief economist Ionut Dumitru expects a return of the main rate to 8.5%, while Anghel and Craciun count on the 9% level, and Libocor expects a hike in the main rate, during the year, to 9.5%.

In the last four monetary policy meetings, the central bank upped the main rate by 200 base points, to 9%. After the first two months of the year, inflation reached 1.57%, while annual inflation grew to some 8%. The central bank’s target inflation for 2008 is 3.8% plus/minus one percentage point, while the target for 2009 is 3.5%, with the same variation interval.

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