Tuesday, May 6, 2014

Romania holds rate, sees inflation 3.3 percent end-2014

    Romania's central bank maintained its policy rate at 3.5 percent, as expected, along with its reserve requirements, and forecast inflation of 3.3 percent by the end of this year and the end of 2015.
    The National Bank of Romania (NBR), which cut its rate for the sixth time in a row in February, said its latest quarterly inflation report, which will be released on May 8, reiterated that the outlook is for the inflation rate to remain inside the bank's target range of 2.5 percent, plus/minus one percentage point, starting from the second half of this year.
    In its previous inflation report from February, the NBR revised upwards its 2014 inflation forecast to 3.5 percent from 3.0 percent and forecast 2015 inflation of 3.2 percent.
    Romania's headline inflation rate fell further to 1.04 percent in March from 1.1 percent in February for average inflation of 2.8 percent from 3.2 percent. The European inflation gauge, the Harmonised Index of Consumer Prices (HIPC), eased to 2.3 percent in March from 2.6 percent.
    The central bank said the low level of inflation was in line with its projection, with the negative output gap and inflation expectations keeping it within its target range, and one-off factors along with producer prices pointing to further moderate inflationary pressures.
    The primary risks to the bank's outlook stems from external sources, primarily the appetite of investors to investments in emerging markets amid the recent geopolitical and regional tensions, cross-border debt deleveraging and the impact of major central banks' monetary policy stance.
   Romania's economy is improving on the back of stronger exports, a favorable performance of its industrial sector and a gradual consolidation of consumption, the bank said, adding that the current account and international reserves "remain in a comfortable zone" and a substantial part of Romania's external debt has been repaid.
    Romania's Gross Domestic Product grew by 1.6 percent in the fourth quarter of last year from the third quarter for annual growth of 5.4 percent, up from 4.2 percent in the previous quarter.
    The NBR pointed out that loans denominated in the leu currency had picked up while foreign currency loans had declined so the total rise in private sector loans were still declining.
   But the share of foreign currency loans fell to 59.5 percent, the first time in five years that it has dropped below 60 percent, strengthening the central bank's monetary policy transmission mechanism.
    The central bank also maintained its reserve requirement on domestic leu currency deposits at 12 percent and the requirement on foreign currency deposits at 18 percent. In January the requirements were from 15 percent and 20 percent, respectively.



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