Romania holds rate at record lows

Romania’s central bank left its benchmark interest rate unchanged at 6.25 per cent as expected on Wednesday, steering a course between keeping inflation in check and encouraging a still tentative economic recovery.Neighbours Poland and Hungary have raised rates this year to fight price pressures, but Romania - which has the highest borrowing costs in the region - has had little such room for manoeuvre.The central bank said it expected faster disinflation in the coming months due to lower food prices and the impact of a value-added tax hike fading but a continued prudent monetary policy stance was needed.“In the medium-term, upside risks to inflation remain significant,” it said in a statement, adding these were mainly due to the euro zone and US debt problems and planned increases in government-set prices for energy.June inflation in Romania was below forecasts at an annual 7.9 per cent and the central bank, which has kept rates unchanged since May 2010, expects that figure to drop to 5.1 per cent by the end of 2011.But that would still put it above target and planned hikes in regulated prices as well as the impact of the euro zone debt crisis point to the likelihood of unchanged rates for the rest of this year.“Weak consumer demand due to fiscal austerity measures, high interest rates and high inflation are supporting rate cuts, while prevailing inflation risks from possible hikes in administrative prices are supporting rate hikes,” said Nordea analyst Elisabeth Andreew. “In addition, it is important to try to keep the leu stable with relatively high interest rates, as the market is focusing on Romania’s exposure to Greek and Italian banks.” The leu currency, which is almost unchanged against the euro this year, showed no reaction to the decision and was 0.4 per cent higher on the day by 1205 GMT. All 16 analysts polled by Reuters had seen the central bank holding rates. The median forecast until the end of the first quarter of 2012 is also for rates to stay on hold. The central bank is expected to cut rates in April-June 2012, with the median forecast for a cut to 6 per cent. From / Gulf Today