Patience or a third rate cut in a row? – ING

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

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 split. On one side is the rebounding credit market, wages and loose fiscal policy speaking against further rate cuts. On the other, inflation is lower than expected and the economy is surprising on the negative side.”

“The global picture is also mixed with the Fed cutting rates and the situation in the Middle East pushing up oil prices. FX forwards suggest a market on the dovish side for today’s decision. However, it’s hard to expect any reaction from the RON which remains firmly anchored just below 5.00 EUR/RON and we don’t expect any changes here in the near term.”

“At least the front of the Romania government bond curve could see some support if the NBR continues to cut rates for the third straight time. On the other hand, in the bond space, the focus remains mainly on fiscal policy. Speculation yesterday of the Ministry of Finance’s agreement with the European Commission on this year’s deficit at 7.9% of GDP can hardly be taken as good news, given that it is more at the upper end of market expectations, implying further bond issuance this year.”