Romania’s Central Bank (BNR) could lower the key interest rate to 9 percent following the economy’s deterioration above expectations in the first quarter, analysts estimate, and they do not exclude a cut of mandatory minimum reserves for lei passives, to assure permanent liquidity on the market.
Analysts underline Romania’s economy got worse in the first quarter and that the main interest rate is too high following these circumstances. The gross domestic product (GDP) decreased by 6.2 percent year-on-year in the first three months, according to the country’s statistics body INS.
Nicolaie Alexandru Chidesciuc, senior economist for ING Bank Romania, bets on a 9 percent key interest rate, from 9.5 percent in present, but does not exclude a sharper cut, of 0.75 percentage points.
Chidesciuc also estimates BNR could slash mandatory minimum reserves for lei passives from 18 percent at the time, in a bid to assure permanent liquidity on the banking market. He added it is harder to estimate such a decision as BNR could prefer a more cautious attitude.
The analyst deems such decision will not depreciate the national currency as investors’ feeling towards the region has improved lately.
A new cut of the mandatory minimum reserves is seen by analysts as a rather cautious move, after the one decided last fall, when BNR reduced them from 20 to 18 percent.
Chief-economist for Raiffeisen Bank Romania, Ionut Dumitru, estimates the central lender could lower mandatory minimum reserves for lei passives to 16 percent, besides slashing the monetary policy rate.
However, some analysts do not exclude a decision on the rate of mandatory minimum reserves for foreign currency passives maturing in less than 2 years, which currently stands at 40 percent, the highest level in the European Union.
Chief-economist for Romania’s largest lender by assets Banca Comerciala Romana (BCR), Lucian Anghel, who estimates a cut of the key interest rate to 9 percent, deems BNR could also slash mandatory minimum reserves for passives in foreign currency, taking into account the need to resume lending and the evolution of cash inflows.
Still, other analysts expect BNR to reduce only the monetary policy rate to 9 percent, as there are weak chances to change mandatory minimum reserves.
The central lender’s board will meet on June 30 for the fifth time this year to discuss over the monetary policy rate. BNR lowered the main interest rate by 0.75 percentage points this year, from 10.25 to 9.50 percent, reduced to zero the rate of mandatory minimum reserves for foreign currency passives maturing in more than two years and allowed banks to calculate a higher indebtedness rate for those guaranteeing loans with real estate goods.
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