NBR still mulling over interest cut

The National Bank of Romania (NBR) was not present on the interbank monetary market for its ordinary liquidity control on Tuesday for the fourth trading session in a row.

NBR thus continues to keep the market in suspense, given all those expectations of an upcoming cut of the intervention interest rate. The latest signals show NBR’s Board is leaning towards a postponement of this cut at least this week.

Why should things be any different considering that a relaxation of interests would look like a completely atypical measure for an economy that is now growing at a pace rather specific to an overheating that is becoming more obvious by the day. Since first quarter performance occurred despite interests regarded as “very high”, how much would the economy grow if interests were to fall? The postponement of the decision thus far could be due to these data precisely, which the central bank has had in its possession for a while.

It remains to be seen what kind of risk the central bank chooses to take.

The intervention interest cut may be done without prior official notice, with banks finding out about it from the auctions on the market. And the signal may then show in the interests operated by players. The central bank is also supposed to release three-month deposit certificate issues soon so that it could more readily tackle liquidity.

If the rate cut is not done this week, the move could be postponed for as late as next month, particularly because the consumption boom in the first quarter is likely to alarm the central bank. At the same time, the trade deficit’s upward trend maintaining is yet another alarming factor, as it reflects a demand that cannot be met by the domestic production and therefore is likely to translate into inflation. Under the circumstances, the constant inflation downward trend and the export performance could be considered as not good enough to risk relaxing the monetary policy. Preliminary data show inflation kept going down in May and reached 0.5%. razvan.voican@zf.ro