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Romania Central Bank Raises Key Rate To 9.75% From 9.5%

Romania's central bank Tuesday raised its main lending rate by 25 basis points for the fifth time in a row to 9.75% from 9.5%, the bank said in a statement.

Romania's central bank Tuesday raised its main lending rate by 25 basis points for the fifth time in a row to 9.75% from 9.5%, in a bid to slow peaking inflation, and took further steps to temper money market rate volatility, the bank said in a statement.The bank said three additional measures were taken to align policies to the European Central Bank practice and reduce the volatility of money market rates.The measures will reduce the maturity of the central bank’s deposit-taking market operations to one week from two weeks, in a bid for more efficient excess liquidity draining. Commercial banks and other lenders will also benefit from higher rates of 5.75% from 2% on the central bank’s deposit facility. However, the central bank also upped rates on its lending facility, or Lombard rate, to 13.75% compared with 12%. The bank also said it has left unchanged the existing minimum reserve requirement ratios for both leu and foreign currency-denominated liabilities for banks and other lenders.However, the bank’s board decided to increase the penalty rate for deficits of leu-denominated minimum reserves to 20.5% from 18% per year. The bank reiterated its goal to closely monitor developments in macroeconomic indicators "to assess their outlook, in a bid to permanently ensure the broad monetary conditions needed to counteract inflationary pressures and attain the medium-term disinflation objectives in a sustainable manner."The bank’s board also approved a quarterly inflation report, which will be presented on May 8 in a press conference. The next rate-setting bank meeting is scheduled for June 26. Increase of key interest to 9.75% leaves room for new growth The increase of key interest rate to 9.75% proves the central bank’s additional worries about the high inflation level and could point out a revision of prognosis by 5.9% at the end of the year and leaves new for an interest growth to 10%, analysts say. The National Bank of Romania (BNR) decided on Tuesday to increase the monetary policy interest by a quarter of a point, contrary to market expectations which counted on maintenance. The measure is a sign, considering the marginal effect it has on a short term, proving the increased worries of BNR about inflation and shows that a revision of estimates are possible for the end of the year, within the report about inflation of 8 May”, the senior economist of BCR Lucian Anghel declared. Nicolae Alexandru Chidesciuc, a senior economist of Ing Bank Romania says the interest rate increase by 0.25% on Tuesday leaves room for a new increase up to 10%, possibly after the monetary policy session in June. He says the action also shows the BNR preoccupation to maintain the exchange rate at the current level. Georgiana Constantinescu, the analyst of Credit Europe Bank says the 9.75% increase of the key interest rate shows the central bank wants to bring inflation on a downward slope in the second part of the year in order to return in 2009 to the 3.5% BNR target. ThePresident of Chartered Financial Analyst Dragos Cabat considers this year’s inflation peak may be reached in May or June, because of the basic effect determined by the very low inflation level in the same months of 2007 and does not exclude the peak appearance in July on the background of gas and electricity price growths. Administrative decisions made on Tuesday will not have a significant impact, but show BNR worries about the liquidity level. As for administrative measures made on Tuesday by BNR, analysts say they indicate the preoccupations of the central bank about possible liquidity problems some banks could face. Although they do not consider the decision impact will be a significant one, analysts say those measures help a more efficient transmission of changes for key interests in the market.The administration board of the central bank decided to increase the interest paid to commercial banks for deposit facilities to 5.75% per year and the interest requested from banks for the Lombard credit to 13.75% per year. The measure is part of a broader decision to establish a symmetric corridor of plus minus 4% of these interest rates toward the monetary policy interest. Previously, the interest for deposit facilities was 2% per year and the one for Lombard credit 12% per year. Also, the BNR board decided to increase the penalty interest rate for banks which have a deficit of minimal compulsory reserves in lei from 18% to 20.5% per year, starting with the application period of 24 May-23 June 2008. A third BNR decision consists in reducing the deadline for operations attracting deposits from two weeks to one week, a measure to come into force at the next auction for this kind of operations. “The central bank is looking more and more at the liquidity level, which suggests that some banks need momey,” said the president of Chartered Financial Analyst, Dragos Cabat. “I think that among the administrative measures decided in this session there is the interest rate increase for deposits from 2 to 5.75%. The measure reduces the pressure on banks, Anghel said.Nicolae Alexandru Chidesciuc also considers that the increase of this interest rate could contribute to the reduction of speculations which might create significant oscillations of the exchange rate.Lucian Anghel, the senior economist of BCR considers that an appreciation of the leu against euro is possible in the second part of the year, helped by big interest rates in the inter-bank market and the state bonds in lei, which will become attractive instruments for investors, especially in the conditions in which inflation should cool down in that period. Sursa: http://www.actmedia.ro

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