Eugen Dijmarescu, vice-governor of the National Bank of Romania (NBR), in charge of market operations, believes a new reduction in the monetary policy interest rate is no longer an option for the central bank any more, until the end of the year.
"I don't think this would be an option, given the current inflation-related circumstances, so I have strong doubts that there will be another cut in the interest rate," the NBR official said on Wednesday, reinforcing the expectations of banking analysts, who have already announced estimates that indicate the monetary policy interest rate will stay at 7% until the end of the year, with a possible increase to be considered in the first half of 2008.
From February to June, the NBR cut the interest rate by 1.75%, from 8.75% to 7%, where it has stayed since July. The next monetary policy meeting is scheduled for September 26.
Dijmarescu is not fuelling bankers' hopes as to the long awaited cut in the minimum mandatory reserves, which has in fact been promised frequently by the central bank as part of the process of harmonisation with the practices of the European Central Bank (ECB). "Talks are welcome, they lead to the measures that need to be taken, but the time for this can only come when market conditions allow for such actions to take place without upsetting the balance," said Dijmarescu.
The ECB recently said that the level of minimum mandatory reserves (20% for RON and 40% for foreign currency), imposed on the banks by the NBR, continues to be "markedly different" from those operated by credit institutions in the other 13 euro zone countries, despite the adjustments made this year. Under the circumstances, domestic bankers are complaining about the disadvantageous positions that the NBR has put them in in terms of the costs incurred, in comparison with European players that can operate freely on the market and be more competitive through the prices they offer.
As for the inflation spike in August (0.86%), Dijmarescu refers to it as a "shock", although the NBR did largely anticipate it in July, and increased the annual inflation forecast from 3.7% to 3.9%.
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