BNR: there is no risk for hard landing of economy

There is no risk of hard landing (sudden slowdown of economy) in Romania, even if the effects of the five successive increases in the key interest rate by 2.75% materialized, Cristian Popa, vicegovernor of BNR, told a May 19 conference occasioned by the annual meeting of EBRD.
The official of the Central Bank commented on the EBRD decision to adjust by 1.5% the forecasts of economic growth in Romania in 2008, from 6.5% to 5% in the context of toughened monetary policy by BNR, which has increased the key interest rate to slow down inflation. EBRD has downgraded the outlook on Romania, Ukraine and Kazakhstan – three important states for the investors on the developing markets – due to the difficulties resulted in the wake of toughened international crediting and inflation conditions.
"EBRD does not estimate a hard-landing risk, it is just a reconsideration of the economic growth forecast taking into account the strengthening of the economic policies, especially the monetary policy. Anyway, a slowdown from 6.5% to 5% does not mean hard landing. BNR forecasts an economic growth of 5% – 6% in the next 2 years, which would be more in line with the potential GDP”, Popa said.
At the same time, he said the leu has finished the period with very high volatility of the exchange rate, which has stabilized between 3.5 and 3.7 lei for 1 euro.

Given the 2008 outlook regarding a good agricultural year and the economy’s trend in Q1, it is possible also for the pace of economic growth in 2008 to exceed expectations, and for the EBRD forecast not be confirmed.
"Of course we have to make sure we are heading to a recession following the increases in the interest rate but the objective is to adjust the economic growth to the potential GDP,” said Popa.
The BNR officials the scenario according to which the international financial crisis would worsen dramatically and some players would consider shrinking their operations is very unlikely.
According to Popa, the banks’ exposures in the countries that have joined recently the EU will remain profitable due to the interest rate spread. Moreover, the growth rates are very high in these countries, and the outlook is promising even in the case of some slowdowns.
Popa reaffirmed BNR would be pleased with a slowdown in lending.
Herbert Stepic, CEO of Raiffeisen International and chairman of the Supervision Board of Raiffeisen Bank Romania, forecasts the lending will reduce to half in Romania this year.
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