Even though inflation went down faster than it expected, the NBR is not thinking of cutting the interest rate. Instead, it is considering relaxing some administrative restrictions first, starting with the minimum mandatory reserves in RON, Governor Mugur Isarescu (photo) stated yesterday. "I for one am in favour of going ahead with the unorthodox measures and then addressing the interest rate directly. The minimum mandatory reserves in RON are very high (20% of liabilities attracted by banks); we are in no rush (to do the same with) those in foreign currency, because we don't want to encourage lending in foreign currency," Isarescu said. NBR's top man says a rate of almost 4% in real terms, resulted from a nominal rate of 8.75% against 4.8% inflation is "not high" in a country that is trying to continue disinflation, with risks on every demand component. "We set the rate with the 2007 inflationary risks in mind." Isarescu reiterated that the NBR was not concerned about the connection between the interest rate and economic growth. "We will make a decision to cut the rate only based on inflation, not on economic growth. This (economic growth) has autonomous determinants, such as foreign investment and it turns out we didn't kill it with the restrictive policies," Isarescu stated. He says "several quarters" will pass before NBR starts relying on the rate as a monetary policy instrument alone.
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