BNR keeps reference interest rate steady, at 8 pc

In its last session dedicated to monetary policy this year, the Board of Administrators for the National Bank of Romania (BNR) resolved to keep the monetary policy interest rate steady at 8 per cent and the RON and hard currency mandatory minimum reserve rates at 15 per cent and 30 per cent respectively.

Also, the BNR Board of Administrators decided that banking sector liquidity should be managed in firm fashion with a view towards strengthening monetary policy signals. The members of the Association of Financial and Banking Analysts in Romania (AAFBR) foretold the decision by the BNR board to keep RON and foreign currency interest rates unchanged. However, 20 per cent of the respondents to a poll among AAFBR members opined that the central bank might cut the monetary policy interest rate down by 0.25 per cent. This year, the central bank cut monetary policy interest down 2.25, from 10.25 per cent.

The decision means commercial banks have to keep loan rates at current levels. BNR have reached the decision also in order to keep the RON from depreciating further. RON varied insignificantly against the euro in the first half of Tuesday's inter-banking trading session, with the exchange rate wavering slightly over RON 4.3/EUR, down by 0.03 bani, to RON 4.3017/EUR. The RON will slightly depreciate against the EUR to 4.32 until December, but will appreciate over the next 12 months to RON 4.15/EUR, analysts said within a Reuters survey.

While the reference rate was kept steady, the inflation target set by BNR experts for 2011 was reduced by 0.5 per cent, from 3.5 per cent for next year's. The target pledged will be discussed with government, according to a BNR release and the quarterly inflation report passed and examined by the BNR board will be put forth Friday. Also, BNR's short-term forecast includes inflationist pressures induced by the excise-duty adjustment on January 1, 2010, inter-bank interest rates higher than the key-interest rate and negative anticipations from the tax and revenue polities affected by the volatile political climate.

BNR set an inflation target of 3.5 per cent for 2009, with a variation range of +/- 1 per cent, the goal being one of the quantitative criteria agreed on as part of Romania's agreement with the International Monetary Fund (IMF). In the most recent quarterly report, published last August, the central bank forecast an inflation of 4.3 per cent in December 2009 and 2.6 per cent at the end of next year.

According to the most recent data released, consumer prices rose 0.39 per cent in September, from the previous month, thus bringing to a halt the decline that started in July, yet the annual rate dropped for the seventh consecutive month, from 4.96 per cent to 4.94 per cent, hitting an all-low for the past 26 months. Prices fell for the first time this year, by 0.07 per cent back in July against the previous month. Monthly deflation rose to 0.19 per cent in August, to an annual rate of 4.96 per cent, the lowest in the past two years.

Romania made adopting EUR as its currency on January 1, 2015 into a target, which means the country must abide by exchange rate mechanisms (ERM II) in 2012 and meet five converge criteria, among which one dealing with inflation. Inflation rate in an EU member state willing to adopt the EUR shall not exceed 1.5 per cent, which is the average level of inflation in the top three best performing EU state members.

According to data provided by the Statistical Office of the European Communities (Eurostat), in September, Romania had the highest inflation rate EU-wide, 4.9 per cent, against a 27-member state average of 0.3 per cent, and - 0.3 per cent in the euro zone respectively.

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