In January NBR cut key rate and minimum reserve requirement ratios 

In line with both our anticipations and market expectations, on 8th January the National Bank of Romania cut the monetary policy rate by a further 25bps to 3.75%. The NBR also decided to cut minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions from 15% to 12% and from 20% to 18%, respectively. 

We consider that the NBR will continue easing, cutting the key rate again by 25bps to 3.50% on 4th February. 

The firm external demand for Romanian products continued in November, this being suggested by the strong annual dynamics of exports and industrial production.  On the other hand, lending activity continued to be poor, despite central bank’s efforts to decrease the interest rates by cutting the monetary policy rate and ensure a high level of liquidity to commercial banks. During the period August-October some signs of recovery were seen in RON-denominated loans, which faded away in the last two months of 2013.

After losing ground against the single currency for most of January on increased risk aversion towards emerging markets, the RON recovered some of the losses towards the end of the month, supported by local players. The consistent EUR-selling RON-buying orders from locals that determined the drain of liquidity in the money market increased the probability that the central bank was behind those orders.

Florentina Cozmâncă
Senior Economis
The Royal Bank of Scotland plc, Edinburgh, Romania Branch