In line with our expectations and the market consensus, the central bank today left the monetary policy rate untouched at 5.25%. The minimum reserves requirements for RON and FX were also left unchanged.The National Bank continues to err on the safe side, as inflation pressures resurfaced in December, when CPI climbed to 5%, from 4.6% in the previous month. The central bank is still in the same economy is in neutral and the short-term prospects so far remain subdued the economy is trailing behind its potential. Private lending is still downcast, having increased a mere 1.5% in 2012, while retail loans were spinning their wheels last year (+0.2%).Inflation will be pretty much under the spell of several rounds of energy price liberalization (electricity and natural gas) in 2013 as part of the current precautionary IMF/EU deal and we continue to see it hovering above the upper bound of the CBs target (3.5%) throughout the remainder of this year. The negative output gap will tame inflation pressures somewhat, but this explains only 5% of the annual change in the CPI. We see inflation ending 2013 at around 4.1% and a flat key rate at 5.25% until end-2013, while on a more confident side, the central bank expects it to land dead on the upper edge of the inflation target (3.5%).Market reaction: muted, with the leu trading at 4.3770 against euro.
Source: bne