Patience or a third discount in a row? – ENG

The main event in the Central and Eastern Europe (CEE) region today is the meeting of the National Bank of Romania, notes Frantisek Taborsky, ING’s currency strategist.

EUR/RON remains firmly anchored just below 5.00

“Our economists expect rates to remain unchanged at 6.50%, in line with expectations, but the survey is divided. On the one hand is the recovery of the credit market, wages and relaxed fiscal policy which speak against further cuts in interest rates. On the other hand, inflation is lower than expected and the economy is surprising on the downside.”

“The global picture is also mixed with Fed rate cuts and the situation in the Middle East pushing up oil prices. Forex FX suggests a favorable market for today’s decision. However, it is hard to expect any reaction from the leu which remains firmly anchored just below EUR/RON 5.00 and we do not expect any change here in the short term.”

“At least the front end of the Romanian government bond curve could be supported if the BNR continues to cut interest rates for the third time in a row. On the other hand, in the bond space, the focus remains mainly on fiscal policy. Yesterday’s speculation about the Finance Ministry’s agreement with the European Commission on this year’s deficit of 7.9% of GDP can hardly be considered good news, given that it is more at the high end of market expectations, implying more bond issues this year.”