BNR: We reduced the key interest to manage inflation and secure a durable economic re-launch

Romania’s Central Bank (BNR) Administration Council (CA) reduced the key interested by 0.5% in the first monetary policy meeting of 2010, from 8% to 7.5%. The minimum compulsory deposit levels for lei and foreign currency have remained unaltered. BNR’s reasons are „the temporary stagnation of the des-inflation process simultaneous with a slight improvement on the way investors perceive the Romanian economy in regards to the relaxation of the inner political environment”, a BNR communiqué shows.

„BNR saluted the normalisation of the political situation which allowed the reduction of the key-interest and has a better perspective on the inflationist policies. It is possible to experience inflation under 4% this year”, Raiffeisen Bank chief economist Ionut Dumitru told HotNews.

According to him and theoretically, the drop in the key-interest would be mirrored by the interest rated practices by banks for deposits and credits, but it all depends on the way things evolve on the internal banking market. Here, immediately after BNR’s announcement, the monthly interest rate disappeared for several seconds, and on return its rate fell from 10% to 9%, dealers say. Other bankers seem to be surprised by the BNR’s gesture, estimating a better political environment as background.

„BNR has a more optimist perspective on inflation and on the political situation. Maybe this is what made them lower the key-interest by 0.5%. We keep our distance as long as the Budget has not made it through the Parliament yet and the 2010 agricultural year might be better than 2009, which has been an excellent one. The BNR gesture is, therefore, an appreciation of the political scene evolutions in the first place”, believes ING Bank Financial Markets Department economist Vlad Muscalu.

It usually takes several months for the cot in BNR’s key-interest to influence credits. The effects will be seen on the inter-banking loans market. If these drop, one can talk about a lower interest rate for the credits given out by banks, as well as the payment to the new deposits.

„BNR will continue to monitor closely both the evolutions of the internal and international economic environments, to insure the stability of prices on medium term and the financial stability”, the BNR communiqués indicated.