Economic overview - Romania - July 2009

5 August 2009

RAIFFEISEN BANK S.A.

 

Highlights

• Monthly inflation rate came in at 0.2% mom in June, in line with market expectations. The annual rate of inflation decreased only slightly to 5.86% from 5.95% in May. But we expect it to fall to 5.1% yoy in July and towards 4.5% yoy by the end of the year.

• Economic activity continued to deteriorate further in May, especially in the construction sector. April and May’s data suggest that the pace of the decline eased as compared with the first quarter. Also, the registered unemployment rate reached 6.3% in June, up from 4.3% at the end of 2008.

• On 24 June, the liquidity in the banking system was boosted by RON 3 bn and EUR 1.3 bn following the cut in minimum reserves requirements by NBR both for RON and foreign currencies. The banks lent the largest part of the excess of liquidity in foreign currencies to the government through a “club loan” arrangement.

• On 4 August, the NBR cut the monetary policy rate by 50 bps to 8.5%. Also, the NBR lowered minimum reserve requirements for banks’ liabilities in foreign currencies to 30% from 35%.

• Money market interest rates fell after the central bank cut the monetary policy rate. After a long period of time (18 months), the market interest rates are now close to the monetary policy rate.

• At the end of July, Romania received the first instalment (EUR 1.5 bn) from the European Commission loan. On 29 July, an IMF mission arrived in Bucharest for the first review of the stand-by program agreed in March.

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