Weekly financial focus
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23 Septembrie 2011 |
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BANCA COMERCIALĂ ROMÂNĂ S.A. |
Adresa
Bulevardul Regina Elisabeta, Nr. 5
Bucureşti, Sector 3
Telefon
+40-21-314.91.90
+40-21-312.61.85
Fax
+40-21-310.02.46
+40-21-311.18.19
Website
www.bcr.ro
- CB to keep key rate unchanged next week
- Leu capped so far at 4.3
- Official growth forecast to be revised up for 2011 and down for 2012
- BSE: Generalized decline of market indices
News & real economy
Central bank to keep key rate unchanged next week
A flurry of downward revisions for the Eurozone amid renewed, albeit justified, worries about Greece going bankrupt and sovereign debt meltdown in Europe, point at an extremely fragile external environment. The less supportive external context is expected to drag down the economic outlook for Romania for the remainder of this year and next, while it is not certain that the bumper crop so much touted by the Ministry of Agriculture will be able to outweigh the decline in foreign demand (industry-wise). Romania has pretty much restored its overall macro position, but it is no less true that the recovery seen so far has been extremely shy and unbalanced. It has relied solely on exports and the build-up of inventories. Even though the overall domestic landscape and the persistence of the negative output gap would rather suggest relaxing monetary policy, we see the central bank remaining prudent and keeping an eye on the external developments looming ahead.
Inflation has been ebbing away lately and base on our latest estimates there are increasingly high chances of CPI falling within the central bank’s targeted band (3% ± 1pp) as early as September. Although conditions, both external and domestic, seem to be more auspicious for disinflation, monthly inflation rates will most likely turn positive as of October once the seasonal effect of the fruits and vegetables start to fade away. No later than yesterday, a hike by no less than 8% in the natural gas price for companies was announced by the local energy price regulator. They added that this is part of an IMF plan to wipe price caps off the map. As we have pointed out in our previous issue, the lack of a clear-cut administered price liberalization agenda dampens the 2012 inflation outlook.
Recent experience has taught us that the stronger economic fundamentals Romania has achieved in the last year pale when foreign investors’ fears take over. Their negative impact feeds through the local FX rate quickly and strongly. This becomes all the more important when FX loans have a high share within the total loan portfolio (>60% in Romania). We see the central bank keeping the key rate flat for the remainder of this year. We also do not rule out a cut in mandatory reserves on RON liabilities to lend a hand to the MinFin, which is already coping with higher yields on the primary market. The managed floating regime in place will be put to more use if pressures on the leu continue to build up.
RON capped so far at 4.3
Romanian markets came under stress on Thursday, as risk aversion deteriorated globally. Reuters reports that the central bank stepped in indirectly in the FX market by selling around EUR 20mn to keep the RON at 4.3. A central bank spokesman declined to comment on this issue.
A significant share of FX loans in non-government domestic loans (>60%, most of them EUR-denominated loans) and a pretty strong and asymmetric pass-through from the FX rate to inflation (consumer prices increase when the leu depreciates but tend to remain unchanged when the RON strengthens) makes the Romanian economy rather vulnerable to disruptive moves of the FX rate. The central bank has repeatedly said that it will step into the market to reduce the volatility of the FX rate if needed.
Official growth forecast to be revised up for 2011 and down for 2012
The president of the National Forecast Commission (NFC), Ion Ghizdeanu, announced earlier this week that they would revise economic growth for 2011 upwards to 1.7%, from the previous 1.5%, following the plentiful agricultural crop Romania is about to deliver this year. At the same time, the NFC is attempting to tone down optimism for next year, saying that Romania is likely to grow within the range of 2.5-3.2% (compared to 3.5-4% in the current baseline scenario). He specified that economic trends could be better, but a lot depends on EU fund absorption and the extent to which domestic demand is able to offset the decline in external demand. On Tuesday, the Parliament endorsed the creation of the Ministry of European Affairs in charge with boosting the EU funds absorption.
President Basescu had previously asked the cabinet to cut economic growth for next year, as the debt crisis in the Eurozone will negatively impact Romanian exports. He also urged the government not to submit an ‘election’ budget for 2012. Next month, an IMF/EU mission will be in Bucharest and the final forecast numbers for economic growth will most likely be released at the end of the review.
