Economists bet on a NBR rate cut by quarter-point to 7.75%

Bankers: NBR should ease the required reserve ratio

Bankers expect the new members of the central bank’s policymaking group to choose to cut monetary policy rate again tomorrow, in an effort to cut market interests. However, it would be better if the National Bank of Romania freed up more cash in the banking system by loosening rules on leu-denominated reserves banks must hold.

The chief executive of Banca Transilvania, Robert Rekkers said he “wished the reserve requirements for leu-currency liabilities to drop to 2%”, from current 15% as it would help resuscitate lending in local currency. Lending in lei is blocked by the sagging demand, and also by the high interest margins practiced by lenders. NBR has recently called on banks to reduce borrowing costs if they want lending activity to pick up.

Catalin Parvu, executive director of Piraeus Bank Romania said a further benchmark rate cut was likely, but NBR should also “cut the required reserve ratio”. Radu Gratian Ghetea, chairman of CEC Bank and Romanian Banking Association said NBR will take further steps to cut the prime rate.

Sergiu Oprescu, chief executive of Alpha Bank Romania expects the “National Bank of Romania to leave rates steady given the current economic and political environment”.

In order to compensate the liquidity shortage, banks have called upon the lombard credit facility, offered by NBR.

Economists: NBR is likely to ease lending rate

The policymaking group of the National Bank of Romania is likely to cut monetary policy rate further by 25 basis points, after 0.5% cuts in the previous sessions, on political tensions that increased pressure on exchange rates and put the disbursement of the third tranche under stand-by agreement with the International Monetary Fund at risk.

ING Bank Romania says the central bank may cut key rate to 7.75% and reduce the required reserve ratio for fx liabilities to 25% from current 30% and leave RRR for leu liabilities at 15%.

“We are back to the times when NBR’s decisions are not very relevant, same as end-2008-early 2009, because there is a big different between money market interests and key rate, due to a weak implementation of monetary policy and strong focus on exchange rates”, ING Bank said in a report. Under these conditions, ING bank expects NBR to allow a further devaluation of the domestic currency versus euro later this year or early 2010 in an effort to soften monetary policy in the real economy.

Ionut Dumitru, senior economist of Raiffeisen Bank expects a rate cut to 7.75% and reduction in reserve requirements for leu liabilities to 15%, citing political uncertainties that put leu under extreme pressure and IMF agreement at risk.

The central bank has cut the monetary policy rate five times year-to-date, from 10.25% to 8%, and reduced the required reserve ratio to 15% for leu liabilities and to 30% for Fx liabilities. The latest rate-setting session in 2009 is scheduled for November 3, when NBR will also pass the quarterly report on inflation.

Annual inflation rate fell in September to 4.94%, however, consumer prices increased by 0.39% month on month.