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Romania’s central bank keeps benchmark rate on hold

Romania’s central bank keeps benchmark rate on hold
  • Romania’s central bank kept its benchmark interest rate unchanged again at 2.50pc on Thursday.
  • Romania’s inflation rate slowed to 3.9pc in August, but remained above the bank’s 1.5pc-3.5pc target.

BUCHAREST: Romania’s central bank kept its benchmark interest rate unchanged again at 2.50pc on Thursday, treading a fine line between reining in above-target inflation and the risk of exacerbating the country’s current account deficit.

Consumption-driven growth in Romania has sucked in imports and the central bank has said it needs to be wary about raising rates in case it boosts the leu, which could drive the external shortfall even higher.

Romania’s inflation rate slowed to 3.9pc in August, but remained above the bank’s 1.5pc-3.5pc target.

Central Bank Governor Mugur Isarescu was due to hold a briefing at 1200 GMT.

The European Union member state is holding three elections this year and next while the government also faces a no-confidence vote in parliament on Oct. 10 after losing its junior coalition partner.

“The fiscal policy stance for 2020 and beyond is a major source of uncertainty for the central bank’s monetary policy, especially in the context of a pending no-confidence vote in parliament,” BCR Bank said in a note.

While capital markets have so far taken the political uncertainty in their stride, stalled policymaking, rising budget and current account deficits and a long election cycle are weighing on the currency.

The Romanian leu was flat against the euro on Thursday but it has fallen 2pc so far this year, the region’s second worst-performing currency after the Hungarian forint.

“A loose fiscal policy in 2020 would overburden monetary policy and the central bank would find itself in a position of having to maintain a tight monetary policy through strict control of money market liquidity for a long period,” BCR said.

The central bank has held its benchmark interest rate at 2.50pc since it raised it by 50 basis points in May 2018 to combat a surge in inflation. It has tightened policy since then by controlling money market liquidity.