The National Bank yesterday announced the fourth intervention interest cut in a row as of June. This was a 0.5% cut to 18.75% a year.
"The National Bank of Romania's Board assessed the latest developments in the disinflation process and in the foreign accounts, as well as the near future outlook and decided for a 0.50% cut of the central bank's intervention interest rate," a NBR release shows.
The release adds the National Bank "will continue to maintain a prudent monetary policy conduct in order to ensure the macroeconomic balance in the future by attaining this year and 2005's inflationary targets."
This is the first time NBR's interest rate takes two steps back in one month. Starting from 21.25% a year before the first cut in June, the interest went down two and a half percentage points in less than three months, to a level lower than in August 2003.
NBR's announcement may very well be considered a surprise, particularly because it was not anticipated by Finance Minister's statements this time.
Moreover, the central bank's decision is beyond the expectations of certain analysts that felt the first cut in August, 0.75%, had been too bold a move.
Containing the extent of the cut to 0.5%, the same as the first cut timidly operated early in June, can be explained by the increased frequency of such steps.
The new intervention interest cut suggests the central bank expects a substantial adjustment of the inflationary rate in August, following the 1.3% peak in July that exceeded even NBR's expectations. This would point to a fast dispersion of the rise in prices in July, as well as of the increase in the fuel prices.
At the same time, the decision counteracts certain inflationary expectations inflamed by the overlapping of the increases of a number of controlled prices and of the agricultural product prices that pushed the annual rate to a little over 12% at the end of July.
Considering that analysts were seeing the intervention interest at somewhere in the neighbourhood of 19% in September, the cumulated 2.5% adjustment to 18.75% already operated by the NBR, paves the way to a general resetting of the interests on loans in foreign currency by commercial banks. At the same time, this should also come with a decline of the interests on deposits, considering how careful banks are to preserve their margins.
"This is a natural development, part of the interest decline expectations. We will not rush to cut interests, but this is a visible trend already, which the entire market will embrace in the medium run," says Bogdan Baltazar, president of BRD-SocGen, the second leading bank on the Romanian market.
He says the NBR has recently cut the interest rates on certain types of loans in ROL by 1-1.5%. "Now that the new intervention interest rate has been cut, we might consider a 0.5% cut for all our interests," Baltazar specified.
Banks have been reluctant to adjust their interests thus far, preferring to wait for the beginning of the autumn, when NBR was supposed to have already announced a benchmark interest cut they were sufficiently comfortable with.
razvan.voican@zf.ro
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