JP Morgan sees crucial summer for bonds

Romanian Government’s policy for the months up to October before the European Commission releases its report will be capital for Romania’s bonds on the foreign markets. This is what the analysts of one of the leading investment banks in the world, JP Morgan, say. They added in the latest report including Romania that the National Bank looked set to start easing monetary policy.

The June to October period (ahead of the next EC assessment report) will be crucial for framing investors’ views, JP Morgan analysts say. They added they expected Romania to close a few more chapters of the acquis in June. Planned external debt issuance of about EUR 1 billion is being reviewed in light of the lower fiscal deficit target, while it has been postponed until later in the year. Meanwhile, Romania offers by far the highest yield among EU accession candidates. Still, although the road ahead appears bumpy, over the medium term, Romania’s spreads should continue their downward trend. Ongoing EU and IMF pressure, however, might add volatility to Romania’s spreads over the next few months.

NBR may relax monetary policy, JP Morgan feels. Benign inflation (0.6% in April and a 0.5% estimate for May) and April data showing export growth outpacing import growth are triggering expectations locally that the NBR may cut rates in June. NBR will most likely maintain a cautious stance and if it decides to go ahead it will only start the easing cycle once it has evidence that the current account deficit has started to moderate. Further data in this regard might be needed, though.