The euro is expected to end this year at around 3.3 RON, while a weaker RON correction will play an important part in NBR's inflation target being met, believes Lucian Anghel, chief-economist with BCR.
"Should the ripples from the foreign crisis not spread, the RON could continue to progress on medium term. We estimate the NBR will make all the necessary moves to reach its target, including the strong purging of excess liquidities on the market," said Anghel.
He believes through the interest rate leverage, the NBR could tighten its monetary policy in order to maintain downward inflation in 2008.
From outside, exchange rate prospects appear quite the opposite: OTP Bank, for instance, in its latest report believes the RON will experience further decline, to around 3.40 RON against the euro in late 2007, and a decrease followed by a "modest weakening" in 2008. Hungarian analysts expect the NBR to keep interest rate at 7% until the first half of next year. As regards the trends of interest rates, Nicolae Danila, BCR's chief executive, forecasts "future upward modifications on the market in terms of interests, both for resources raised by banks and placements (loans)".
"There's the question of whether we should maintain the level of loan interest rates unchanged. Banks are now thinking twice, and the third time they will probably decide to raise interest rates.
We should also consider how we could raise more resources from the domestic market and this also means higher interest rates for deposits. Margins will probably narrow," stated Danila.
For 2008, BCR's inflation forecast suggests 4.1%, if inflation in 2007 nears the upper 5% limit of the variation range around the 4% target.
At the same time, there is a sufficient number of positive elements in Romania's current macroeconomic picture, but it takes time to enhance them and address the imbalances, explained Lucian Anghel, in a presentation of the first country report drawn up by BCR.
"There are no difficulties related to current account financing - Romania's acute problem, although costs could rise," said Anghel, who indicated Romania's major weakness.
"The message of this report to foreign investors is 'keep coming; Romania has the necessary elements to make it a field of interest for foreign investments'," added Danila.
With regard to the banking market, Danila explained banks have started accumulating overdue sums and even significant losses from unsecured consumer loans, with customers likely to have less access to such financing as a result. Therefore, he anticipates banks will focus on financing the real estate market, which has a significant growth potential over the next 5-6 years.
BCR report
The euro is expected to end this year at around 3.3 RON, while a weaker RON correction will play an important part in NBR's inflation target being met
Forecasts "future upward modifications on the market in terms of interests, both for resources raised by banks and placements (loans)"
For 2008, BCR's inflation forecast suggests 4.1% if inflation in 2007 nears the upper 5% limit of the variation range around the 4% target
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