Thursday, May 2, 2013

Romania holds rate, narrows standing facility corridor

    Romania's central bank kept its policy rate steady at 5.25 percent and will continue to provide adequate liquidity to banks but narrowed the symmetrical corridor around its standing facilities by 100 basis points to plus/minus 3 percentage points to "moderate interest rate volatility on the money and banking markets."
    The National Bank of Romania (NBR), which has held its key rate steady since a 25 basis point cut in March 2012, said the interest rate on its Lombard facility would be lowered to 8.25 percent from 9.25 percent while the deposit rate would rise to 2.25 percent from 1.25 percent, effective May 3.
    During its meeting, the central bank's board approved the quarterly inflation report, which will be released on May 8, and compared with the previous report, the "updated forecast indicates an improved short-term disinflation outlook, anticipating the return of the inflation rate inside the flat target band in the second half of 2013, against the persistence of the negative output gap," the bank said.
    Romania's inflation rate eased to 5.25 percent in March, from 5.65 percent, above the NBP's upper target range. The central bank targets annual inflation of 2.5 percent, plus/minus one percentage point.
    "Monthly increases in consumer prices in February and March 2013 stood at historically low levels, reflecting the reduction in inflation expectations," the central bank said.

    The NBR's shift from firm to adequate liquidity management has improved liquidity in money markets and helped bring interbank rates closer to the NBR's policy rate, the bank said.
    It said interbank rates and yields on government securities have dropped and the average level of rates in three-month ROBOR, a benchmark for private sector financing, fell to 4.57 percent in April from 6.04 percent in December 2012.
    Despite recent strains in international financial markets, the NBR said spillover effects to Romania had been contained with a resumption of capital inflows and an appreciation of the leu.
    "The main risks and uncertainties surrounding the updated projection refer to the volatility of capital inflows targeting the Romanian economy amid an external environment featuring fluctuations, as well as to the persistent structural rigidities across the Romanian economy...," the NBP said.


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