More arguments in favor of further easing from the NBR

NBR board will meet on Tuesday August 4th for a monetary policy decision. In my view the arguments for further loosening of monetary policy outweigh those supporting a stop of the easing cycle.

For further relaxation of monetary conditions -meaning either lower key rate or lower MRR for leu and foreign currency liabilities or all of them:

– Headline inflation in below target for 2 years-now in negative territory- and even before recent cuts expected to return to target only in 2017

– CORE inflation keeps falling and now in negative territory

– Nominal GDP growth continues to fall

– Unemployment rate increasing over the last 9 month

– Since 2013 the long term trend in the domestic currency is to strengthen agains the euro-also the pass through from exchange rate to prices has fallen dramatically after 2009

– Greek crisis contained for now

– The FED might wait a little longer to raise the fed funds rate target

РThe ECB will  continue QE in the medium term

On the other side, against further easing of monetary policy, we have:

– Narrow money supply growth (M1)

– Domestic currency credit growth




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