Citigroup: BNR could raise key rate to at least 10%

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The National Bank of Romania (BNR) could raise the key rate again, to at least 10 percent, according to Citigroup analysts, Business Standard reports on April 16.
 
The reason for such a move is the rise in inflation in March, while not too high, exceeded market estimates. Inflation also went beyond Citigroup estimates, of 8.3 percent, in line with BNR’s February projection. "We believe that BNR will continue its trend throughout the year to make monetary policy market conditions harsher, and it is possible that the central bank will increase the key rate by at least 0.5 percentage points, to 10 percent, to force inflation closer to the 3.8 (+/–1 percentage point) percent target," according to Citigroup analysts in a report published at the beginning of the week. Citigroup does not exclude an increase in the key monetary rate to over 10 percent.
 
"We feel that the fact that BNR did not increase the monetary policy interest rate sufficiently is a risk factor and must be carefully monitored. We believe that a rise to at least 10 percent in the key rate is necessary, especially since the leu is not reacting to these measures and inflationary expectations are deteriorating even further. Any proof that this risk will materialize would undermine our estimates, which foresee a gradual improvement of the leu against the euro, from its present level of RON 3.63/•1 to RON 3.55-3.60/•1 by the end of the year," added Citigroup analysts.
 
Other analysts disagree with the findings of the Citigroup report, with most convinced that BNR will not raise key interest in its next monetary policy session in May. In fact, financial market economists feel that the current key rate of 9.5 percent could be the highest this year.
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