Economic overview - September 2011

1 Noiembrie 2011

RAIFFEISEN BANK S.A.

 

Highlights

Consumer prices fell further in September (-0.2% mom), for the fourth month in a row driven by the decline in volatile food prices of fruits and vegetables (-8% mom). The annual inflation rate fell to 3.4% yoy in September from 4.3% yoy in August. This is the lowest level since 1990. Thanks to a statistical base effect, the annual inflation rate has large chances to fall below 3% in Q1 2012 provided that no major supply shocks occur. 

Central bank hold unchanged at 6.25% the monetary policy rate at its last meeting on 29 September. However, the statement following the monetary policy meeting and subsequent comments from central bank’s official were on the dovish side. Rapid decline in the inflation rate has increased the room of central bank to cut the key interest rate. We expect the NBR to gradually ease the stance of the monetary policy stance in the following months. We think the NBR might first cut the monetary policy rate in November (and possibly the minimum reserve requirements for lei) provided that tensions do not increase again on the external markets. However, we expect the easing of the monetary policy stance to be seen with some delay in the yields for treasury securities.

Dynamics of short-term indicators in July and August was better than we initially expected. The data suggest that most of the indicators would have a positive performance in Q3. Moreover, preliminary data suggest a very good performance of the agricultural output this year, which means a large positive contribution from agriculture to the GDP growth rate in Q3. Accordingly, the advance of real GDP in Q3 should be larger than we initially expected. The better than expected performance in Q3 would increase also the chances to see the real GDP growing faster than 1.5% in 2011. 

High risk aversion on the external markets was seen in a depreciation of the leu exchange rate and in an increase in the yields for governmental bonds. However, the leu still overperformed the other currencies in the region, while the yields for government bonds increased only marginally in last month.

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