Analysts predict BNR to cut key interest to 7.75% after political tensions pressured the currency exchange

The new Romanian Central Bank (BNR) Managerial Council will meat on Tuesday, November 3, for the first time. Analysts estimate that BNR is going to reduce the key interest by only 0.25% in the last 2009 session, cutting it to 7.75%. This comes after political tensions amplified the pressure laid on the currency exchange and risks delaying the rest of the IMF loan money coming in. Some analysts do not exclude preserving the interest to 8%, Romanian news agency NewsIn informs.

• „An important factor in the Tuesday’s decision is the great uncertainties created by the political environment, a situation that puts pressure on the leu, but also causes problems to the IMF agreement. BNR will lower the key-income by 0.25% out of prudence in a time of turbulences”, Raiffeisen bank chief-economist Ionut Dumitru told NewsIn. Dumitru expects the compulsory minimum reserves (RMO) for foreign currency passives to drop 5%, amounting to 25%. He also believes that the RMO for leu will be kept at 15%.

• „We returned to a time when BNR’s decisions have a reduced relevance, just like at the end of 2008 – the beginning of 2009, because there is a big difference between the interests on the monetary market and the key-interest, following a weak implementation of the monetary policy and the strong focus on controlling the exchange rate”, ING Bank Romania Nicolae Alexandru Chidesciuc claims.

• „Our main estimate was a drop in the key interest to 7.5%, but the new events triggered by the political instability lower the chances for this hypothesis to come true. However, BNR will most probably cut the monetary policy income by 0.25% because there will be two more months until the next Council meeting and a light relaxation would be welcome”, Volksbank Romania research department chief Melania Hanciula says.

The Romanian national currency – leu – depreciated with over 11 bani, namely 2.64% since the last monetary policy meeting from September 29, following the break of the governing coalition and Boc cabinet’s dismissal by the Parliament.

The political situation questions Romania’s fulfilling the engagements it took in relation with the international financing agreement, risking having the rest of the IMF money delayed.