Analysts: BNR could slash benchmark interest rate by 0.5pc

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The Administration Board of the National Bank of Romania will convene on Wednesday in a monetary policy session to make a decision on the benchmark interest rate and analyse the latest developments in inflation.

Analysts are expecting a new cut in the interest rate from 7.5 percent to 7 percent. At a meeting on January 5, BNR decided to cut the monetary policy rate from 8 percent to 7.5 percent. The BNR Administration Board also decided to tighten management of liquidity in the banking system in order to consolidate the transmission of monetary policy signals.

The Administration Board set the 2011 inflation target at 3 percent, plus/minus one percentage point, down from 3.5 percent in 2010. In the short run, BNR is expecting inflationary pressures as a result of the upward adjustments in excise duties as from January 1, 2010; a persistent spread between inter-bank interest rates and the BNR monetary policy rate, as well as a negative impact on expectations generated by deepening risks related to fiscal and revenue policies in the context of a volatile political climate.

The main responsibility of the Administration Board of the BNR will be Romania switching over to the single European currency, with the exchange rate for the final conversion expected to be the final and most difficult matter. ‘I cannot see other more important matter for the next term in office than the switchover to the euro, which includes price stability and also exchange rate stability and securing both in a sustainable manner. The vital question, the final and hardest matter will by the exchange rate for the conversion,’ BNR Governor Mugur Isarescu said late last year.

He said currently the main problem related to the introduction of the euro is narrowing the Government deficit, not inflation or interest rates. The Central Bank and the Romanian Government has planned that Romania should switch over to the single European currency in 2014, which entails joining the ERM 2 European Exchange Rate Mechanism, the antechamber of the euro zone, in 2012. BNR Deputy Governor Cristian Popa says Romania actually joining the Eurozone could happen on January 1, 2015, provided that it is issued a favourbale opinion in 2014.

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