"The central bank will continue to push the interest rate downwards in the next few weeks. This is only a hunch, but is based on a discussion I had with National Bank Governor Isarescu," Finance Minister Mihai Tanasescu said yesterday. The Minister is thus reverting to his old habit of reading the market's future, anticipating the moves to be made by the National Bank of Romania (NBR).
Both decisions to cut the intervention rate, made by the NBR on June 7 and July 12, have been preceded by such predictions volunteered by the Minister of Finance. However, the Minister refrained from estimating the exact size of any new rate cut.
Just like the Finance Minister, bankers are also keen on reading the market, estimating that the National Bank will make the third decision to cut the intervention rate sometime around the first two weeks of this month.
As in the two previous instances, Mihai Tanasescu says that the main argument in favour of a new rate cut is the encouraging trend in terms of inflation. "Preliminary data for July shows that inflation has dropped below the level of 0.6% logged in June and is likely to stay within the 8-9% limits set for the December-on-December inflation rate," Mihai Tanasescu maintained.
According to the Finance Minister, the National Bank will have an exclusive role in the fight against inflation in the years to come.
Mihai Tanasescu feels the third decrease will be just as prudent as the previous two, so as to avoid a surge in lending and an inflation hike.
In the Minister's opinion, the commercial banks have been late in reacting to the central bank's signals because of a lack of trust in the trend that the inflation rate is currently following, although the inflation rate "is being gauged in accordance with all of the European standards, so there can be no doubt."
"This attitude of the banks will surely change and they will move to cut rates," Tanasescu anticipated.
The Romanian Commercial Bank (BCR) was the first to operate rate adjustments for credit in ROL, even before the National Bank had made its first step.
"BCR can be a trend-setter when it comes to pushing market rates down," the Finance Minister suggested.
Following a cumulated cut of 1.25 points, the National Bank's intervention rate has dropped to 20%. Analysts predict that the decrease will continue until the rate goes down to 18% at the end of the year.
"The recent favourable disinflation trends and the excess of offers on the forex market have suggested that the NBR's next step may be a relaxation of the rate policy. A cut in rates is not likely to trigger an increase in domestic demand, considering the low elasticity of the demand for ROL credits at lower rates," a recent evaluation report drafted by the International Monetary Fund indicates.
The evidence supports the Fund's remarks on the demand for loans, as bank clients are rushing to take credits in ROL, even at very high interest rates, after many years during which they were denied access mainly to consumer lending. razvan.voican@zf.ro
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