Romania may slash the key interest rate by 0.75 percent this year, predicts Garanti Bank

Garanti Bank estimates a progressive reduction of 0.75 percentage points of the key interest rate this year to 4.5 percent, in a move designed to play a central role in stimulating consumption and investments through the re-launch of lending activity.

The bank mentioned in its quarterly macroeconomic report that the key rate may be further cut by 0.5 percentage points to 4 percent in Q1 of 2014. However, the National Bank of Romania (NBR) could hold temporary the yields if the national currency faces stronger depreciation pressures.

The lender estimates the EUR/RON will stay around 4.35 by year end and fall to 4.25 in 2014. Romania’s track record on privatizations and the appetite of foreign investors for Romanian bonds will impact the currency evolution.

Rozalia Pal, chief economist at Garanti Bank, said: “The current market conditions, with lending activity still contracting, call for cheaper financing. Given the improved inflation expectations, NBR is able to give a helping hand for the struggling domestic demand through a softer monetary stance.”

Garanti Bank estimates the economy will grow by 1.7 percent of GDP this year, helped by a “better” agricultural production. It added the domestic economy may grow even more if the privatization on state-owned companies continues, along with an improved absorption of EU funds and the relaunch of large infrastructure projects.

The report notes the Romanian economy grew in Q1 by 0.7 percent quarterly and 2.2 percent yearly, driven exclusively by external demand.

Internal consumption was dented by the negative real private wage growth, while the still blocked EU funded programs hurt investments.

Garanti Bank forecasts the inflation will reach 3.5 percent by year end, in line with the NBR target. Food prices are expected to go down due to the better harvest, while energy prices are expected to grow by 13.6 percent.

Ovidiu Posirca

DMCA

PROTECTED