Two days. That's how long it took the National Bank to decide how to calibrate the first monetary policy measures at the beginning of the year: the intervention rate cut by 0.5% to 16.5% along with the decrease from 30% to 25% of the interest rate on credit facility (the Lombard rate), and, last but not least, the reduction of the interest on the minimal mandatory ROL reserves deposited by commercial banks with NBR from 6% to 4%.
The decisions of the National Bank of Romania's Board were based on an analysis of the recent developments of the economic indicators in their entirety and the outlook for 2005.
A release of the central bank reveals that the short-term projection of the inflationary rate was "reconfigured, so as to also comprise the effects of the changes of certain hypotheses about the adjustment of the controlled prices, the ROL's exchange rate trend and the increase in the available revenues as a result of the tax quota modifications," during the meeting on January 14-15.
The reconfiguration started from tempering the growth pace of the consumer prices in the last two months of 2004, so that the annual inflationary rate fell to 9.3% in December, an "acceptable" fluctuation margin compared with the goal set (9%).
"The acceleration of disinflation in the last few months allowed NBR's Board to decide to reduce the intervention rate by 0.5% to 16.5%," the central bank release says.
The intervention rate went down 4.75 percentage points in the last 12 months against an inflation decline of 4.80 percentage points.
However, NBR sees "risks of inflationary pressures maintaining," considering "the developments in the last few months, as well as those projected for the aggregated demand factors and for the cost elements of the supply." "This calls for keeping the prudent conduct of the monetary policy required by attaining the inflation goals, over a longer interval inclusive, whilst continuing preparations for moving to the direct targeting of inflation," the above-mentioned release adds.
How is the market reading the decisions announced by NBR and how will they reflect in the trend of the interests operated by commercial banks in their dealings with clients? Albeit not everybody shares the same opinion, there are several clear convergence points: the central bank is determined to continue preparations in view of the deregulation of the ROL deposits for non-residents by April, is trying to make these deposits less attractive by reducing interests and, at the same time, takes into account the inflation-related risks by maintaining a prudent intervention rate reduction pace.
Many analysts believe we can expect to see declines in the interests on deposits first in the near future, with a less obvious decline for loans in ROL. At the same time, the NBR would like the commercial banks to show a little more responsiveness to the intervention rate cuts and therefore make the foreign currency credit, stimulated by the ROL's appreciation trend, less attractive.
"Unless the operational costs are dealt with, no bank will operate any substantial cut of the interests on ROL credits. There's also the very high demand, particularly for consumer loans even at 30%-40% interests," says Paul Prodan, ING Bank Romania's chief executive.
razvan.voican@zf.ro ; liviu.chiru@zf.ro
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