BNR Keeps Key Rate Unchanged At 6.25%, Inflation Seen Growing In 2Q

05.03.2011 By Florentina Dragu

Romania’s central bank Tuesday left its main interest rate at a record low of 6.25% a year for the eighth straight time, after costlier fuels and food items pushed the inflation rate to the highest in 31 months.

Romania's central bank Tuesday left its main interest rate at a record low of 6.25% a year for the eighth straight time, after costlier fuels and food items pushed the inflation rate to the highest in 31 months.

The bank also froze the minimum reserve requirements at 15% for Romanian-leu denominated liabilities and at 20% for foreign currency liabilities.

Romanian annual inflation accelerated to 8% in March, the highest rate since August 2008.

"The updated projection of macroeconomic developments envisages a temporary increase of the annual inflation rate in the second quarter of 2011, following shocks induced by factors outside the central bank's management, particularly the pressure generated by surging global prices for food and fuels," the central bank said in a statement.

However, inflation is expected to enter a downward path in the second half of the year, once the first-round effects of a 5 percentage point increase in the sales tax introduced last summer start to fade.

The monetary policy stance "aims to preserve the prospects for resuming disinflation despite the recent inflationary shocks, while broad monetary conditions remain adequate in view of reaching the medium-term inflation target," the bank said.

It noted that improved foreign investor confidence in the Romanian economy in recent months has helped increasing volatile capital inflows, entailing a moderate nominal appreciation of the leu versus the euro.

However, continued and growing flows of volatile capital would limit the central bank's "dosage" of monetary policy tools, the bank added.

The central bank targets an annual inflation of 3% at the end of 2011, plus/minus one percentage point around the band. The bank has recently revised upward its forecast on the annual rate to 3.6% in December, and hinted at another negative revision at its quarterly inflation report due May 5.