The National Bank could resort, for the second time in a row, to both an increase in the minimum mandatory reserves in RON and in foreign currency and to an increase in interest rate, during the monetary policy meeting scheduled for August 9.
These forecasts were made by Eugen Radulescu, CEC chairman and former monetary policy advisor of the NBR governor.
"The central bank has to react to the decision of the government to increase the budget deficit to 2.5% of GDP. Even though the authorities will be unable to actually make all the expenses approved, the aggregate demand stimulation effect will be felt nonetheless, and that will happen at a time when consumption remains fast-paced," Radulescu stated.
The National Prognosis Commission did estimate an economic growth rate of at least 7% for the second quarter, compared with the same time in 2005, that is higher than the potential non-inflationary growth.
Radulescu feels the minimum mandatory reserve for RON may go up from 20%, a level recently enforced, to 25%. In order to prevent the market from reverting to its preference for foreign currency loans, at a time when expectations about RON appreciation maintain, Radulescu believes the NBR could also push the minimum mandatory reserve in foreign currency to 45% of the amounts attracted by banks in foreign currency.
As for the monetary policy rate, the former advisor does not rule out the possibility of it going up to 9% after NBR's Board of Governors decided to raise it from 8.5% to 8.75% on June 27. This level is effectively used in the purging operations conducted by attracting one-month deposits. Eugen Radulescu believes the NBR will have even more room to manoeuvre as the European Central Bank is supposed to raise its interest rate to 3% in its Thursday meeting.
At the same time, Radu Craciun, chief analyst of ABN Amro Romania feels the NBR will not rush to raise the interest rate again, taking its time to assess the effects of the steps taken at the end of June.
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