Romania Central Bank Keeps Key Rate Unchanged At 6.25%

03.31.2011 By Florentina Dragu

Romania’s central bank Thursday left its main interest rate at a record low of 6.25% a year for a seventh straight time, as expected, but lowered the minimum reserve requirements for foreign currency liabilities to 20% from 25%.

Romania's central bank Thursday left its main interest rate at a record low of 6.25% a year for a seventh straight time, as expected, but lowered the minimum reserve requirements for foreign currency liabilities to 20% from 25%.

The bank kept the minimum reserve requirements unchanged at 15% for Romanian-leu denominated liabilities.

"A continuous assessment of trends in non-government lending is required in order to secure adequate developments in leu-denominated loans versus foreign currency-denominated credits," the central bank said in a statement.

It noted the lower forex minimum reserve ratio was necessary to ensure the gradual alignment to European Central Bank standards.

Analysts had estimated the central bank would refrain from a rate cut at the Thursday meeting, as inflation continues to accelerate.

The annual inflation rate rose to 7.6% at the end of February, above estimations, pushed up by costlier food items.

The central bank expressed worries about increasing risks related to the short-term inflation, as surging global prices for food items and fuels may lead to upside inflationary pressures.

Persistent uncertainties regarding administered price adjustments on the local market and external risks further prompt the central bank to "firmly anchor inflationary expectations," the bank said.

However, broad monetary conditions for the medium-term inflation target remain "adequate" as the monetary policy stance stayed prudent, it added.

The central bank said bank interests have come closer to the monetary policy rate, while the leu appreciated against the euro, as risk perceptions for the Romanian economy improved.

"The analysis of macroeconomic developments reveals ongoing positive annual growth in industrial output and exports," the statement noted.

However, both domestic demand and private lending remain weak, the central bank said.

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, from 3.4% previously.