Main rate - The central bank targets proper level of liquidity to avoid pressures on the weaker leu

Financing the public deficit and unlocking the clogged lending need a proper level of liquidity in the banking system which should discourage the exchange rate's volatility as the leu already fell to a four-year low, the central lender's BNR detailed release reads.

BNR decided today to maintain the annual key interest rate at 10.25 percent in line with analysts' expectations and to keep the minimum mandatory reserves at 18 percent for passives in lei and at 40 percent for the ones in foreign currency.

The weaker leu which keeps dropping spurs inflationary pressures which are likely to rise because the external deficit will be corrected while the internal demand will be gradually adjusted, the release also read.

The annual inflation rate in Romania stood at 6.74 percent in November 2008 over the 9.04 percent peak reached in July. Yet, the level is still worrying. What's more, the leu is not feeling too well with the financial crisis knocking settling in comfortable and scarying investors away.

BNR posted an average interbank bid rate (ROBID) of 13.10 percent per year, below that of yesterday's session of 13.50 percent and the interbank offer rate for overnight deposits (ROBOR) slumped to 14.11 percent, versus yesterday's 14.53 percent.

Interbank interests for overnight deposits remained at 13-14 percent per year, above the monetary policy rate of 10.25 percent and slightly below the rate for the Lombard credit of 14.25 percent per year.

A recent look into macroeconomic evolutions reveals the continuing of deflation, but at the same time, economic slowdown generated by fewer investments, mostly in constructions coupled with a drop in industrial output and export, BNR said in its release.

This context considered the newly-installed government has a tough role to play to narrow the budget deficit, organize public spending and harshen the fiscal policy, the central lender pointed.

BNR hiked the annual key interest rate from 7 to 10.25 percent from October 2007 until the end of July 2008. The lender decided to hold the monetary policy rate at the same level in the last two sessions of 2008, but on October 30 it cut the minimum mandatory reserves for lei passives by 2 percentage points in a bid to raise liquidity on the market.

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