Raiffeisen analysts surprised by the decision of the NBS to lower the key policy rate

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The Executive Board of the NBS lowered the key policy rate to 4% on July 7, but also narrowed the interest rate corridor relative to the key policy rate from +/-1.75% to +/-1.50%.

- We consider that this decision in not fully in line with the signals previously sent by the bank, seeing how in the last four meeting of the Executive Board the key rate policy remained unchanged, which was based on the increase of external risks and the expectation that the inflation in the second quarter would grow, though remaining outside the targeted corridor – say the Raiffesien Bank’s analysts.

The market, as they add, is also surprised by the decision, seeing how 20 of the 24 analysts in the Bloomberg survey expected that the key policy rate would remain the same, considering the uncertainties arising from Brexit, the fact that the new government hadn’t yet been formed and due to erratic reformation of public enterprises.

It seems that the NBS was encouraged by the positive assessment in the IMF’s review, the recent growth of the country’s rating at the Fitch agency and the fact that another rating agency, S&P, has confirmed the country’s stable outlook, the announcement says.

The analysts say that they nevertheless expected the NBS to be more reserved, considering the fact that the government hadn’t yet been formed, that the restructuring of public enterprises is still uncertain and due to uncertainties arising from Brexit.

They estimate that this will be the last lowering of the key policy rate of the NBS in 2016.