ING: The NBR will continue to act for RON depreciation

The NBR will try to avoid a “sudden” exchange rate correction and will continue to act for a smooth decline of the RON through indirect moves on the interbank market, explains Ciprian Dascalu, a senior economist with ING Bank. “To offset the effects of the relaxation up of monetary conditions, the NBR will strengthen its control over liquidities, thus narrowing the gap between interest rates on the market and the monetary policy interest rate,” considers Dascalu. At the same time, he expects the NBR to even resort to future interest rate increases, with this move most likely to be made in the first half of 2008. In the middle of this year, economic outlooks rapidly deteriorated as GDP growth fell below market expectations amid a decrease in agricultural yield caused by drought, and an industrial slowdown due to the pressure of the exchange rate increase. The stronger RON cut the competitiveness of Romanian exports, while imports were bolstered. The overall situation was compounded by a rapid wage increase, way above productivity gains. With the fiscal and wage policies unlikely to contribute to the smooth adjustment of an overheated economy, Dascalu says the NBR preferred to act for a RON depreciation.