The short-term indicators pointed to weak activity in May – though under a pattern shaped by the Easter holidays in 2013 and 2012. For the whole period April to May, defined ad-hoc in order to avoid the impact of different schedule of the Easter, the industrial activity [output, exports] remains robust – and it even accelerated from Q1. Constructions activity – and thus investments, lags however behind. The budget adjustment operated at end-July might keep [public investments under pressure in spite of the government loosening the fiscal gap target for the year to 2.3% of GDP from 2.1% previously. The loosening was prompted by below-expectation revenues and rising financial needs.

In the banking sector the stock of loans turned to negative annual dynamic [nominal] and the share of bad loans keep rising. Moody’s rating agency said it has downgraded by two notches the long-term deposit ratings* on Romania’s largest banks BCR – Erste Group and BRD – Societe Generale. The outlook is negative. Given the size of the two banks, the downgrade is rather relevant for the entire country’s banking system.

The Romanian government will make public on July 31 the details of the follow-up stand-by agreement with the IMF and the EU, PM Victor Ponta announced.
The details of the new agreement were already sketched, he stressed, but last-minute adjustments are possible. Notably, the PM’s statement confirmed that the EU will join the IMF in the new agreement with Romania – after speculations had put under doubt EU's partaking in the Fund’s new deal.

The adjusted CORE2 inflation* calculated by Romania’s central bank accelerated to 2.85% year on year at the end of June from 2.65% at the end of May, the monetary authority said. On the quarter, it decelerated however from 3.03% at end-March.
The target for end-Q2, under the latest inflation forecast issued in May, was 2.6%. The least volatile indicator of consumer price inflation thus missed the target by 25bps, threatening the end-year 2.1% y/y target.

Romania’s central bank on Monday, July 1, cut by 25bps to 5% its monetary policy interest rate for a first time since February 2012, the monetary authority said. The move was announced as imminent by governor Mugur Isarescu several months ago.
The central bank quoted disinflation as the main ground for the cut, while on the other hand strongly recommending commercial bankers to unlock lending. Nonetheless, with the monetary transmission mechanism hardly functioning, the central bank’s rhetoric is debatable. The rate cut is rather aimed at bringing the monetary policy rate in line with the market than pursuing any particular policy.