Economic Overview - March 2011

12 Aprilie 2011

RAIFFEISEN BANK S.A.

 

Highlights

Inflation rate surprised on the negative side in the last months. Monthly inflation rates for Jan-March were high, and above market expectations. The annual inflation rate climbed to 8.0% yoy in March, a high level compared with our and market forecast from few months ago. Advances in food and fuel prices were the main drivers of the inflation rate. We see these risks factors materializing further in the coming period and we expect the inflation rate to increase towards 8.5-8.7% yoy in June, before decreasing towards 5.3% yoy in Dec.

At the last monetary policy meeting on 31 March, NBR hold unchanged the key interest rate at 6.25%. However, in a surprise move, it cut the ratio for FCY minimum reserve requirements to 20% from 25%. We expect the NBR to keep the key rate unchanged at 6.25% by the end of the year as it has to deal with the high inflation rates and increasing inflationary expectations.

The central bank seems to have changed the attitude on the exchange rate, allowing the leu to appreciate against the euro (+3% since the beginning of Feb) in order to limit inflation from import prices and to anchor inflationary expectations.

Incoming data point to a gradual recovery of economic activity in the first quarter of the year. Exports and industry remained on an upward trend. Retail sales advanced both in January and February. We are looking for a positive quarterly GDP growth rate in Q1 2011 (+0.4% qoq).

A low budget deficit was recorded in Q1 2011 (-1% of GDP).

IMF Board approved a new 2-year SBA with Romania. Romanian authorities intend to use available money only in case of necessity. Also, the EC approved the disbursement of another EUR 1.2 bn from the external loan agreed in 2009.

 

Key events of the month

Better than expected dynamics of unemployment

The dynamics of the unemployment rate over the last two years was better than expected, as the unemployment rate has increased less than initially anticipated. Romania has one of the lowest unemployment rates in the EU, while its increase between 2008Q2 and 2010 Q4 is among the lowest ones. However, the level of unemployment does not reflect the real situation from the labor market, as the number of employees in the economy is still decreasing, so the economy is not creating jobs yet.

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The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...