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December 7, 2022

BNR keeps key interest at 5.25pc

Isarescu: Inflation outside target interval until second half of 2013.

The Board of Directors of the National Bank of Romania (BNR) on Friday decided to keep the key interest rate at 5.25 per cent per annum as well as the current minimum reserve requirement for liabilities in local and foreign currencies of the banks, in conformity with analysis’ expectations. Another decision was on ‘the firm management of liquidity’ in the banking system, according to a BNR release. The Association of Finance and Banking Analysts of Romania has recently said it expected BNR would keep the key interest rate at 5.25 per cent and the minimum reserve requirement for liabilities in RON at 15 per cent and for liabilities in other currencies at 20 per cent, the same scenario being forecast also for 2013. BNR has the key interest rate by 0.75 percentage points this year, down to an all-time low of 5.25 per cent per annum. At the beginning of May, BNR however topped the cycle of reducing the key-interest because of the political changes in Romania which overlapped with the rising investor fears regarding the future of the euro zone. According to the public time table, the next BNR Board meeting dealing with monetary policy will be on January 7, 2013.  Also on Friday, the central bank Board approved the quarterly inflation report to be presented during a press conference on Wednesday. ‘The inflation rate will be outside the variation interval targeted until the second half of next year,’ BNR Governor Mugur Isarescu said on Friday. The report also identifies the revision of the projected trajectory of the annual inflation rate as a result of the transitory unfavourable impact of severe shocks of the nature of supply.  The updated projection highlights the prospect of an annual inflation rate placed outside the variation interval around the central point of the target (3% in 2012 and 2.5% beginning with 2013; with a variation of plus/minus one percentage point – a/n) until the second half of 2013, as well as the repositioning and subsequent consolidation within the interval.The press release further notes that the main risks associated with the new forecast are related to a potential rise in the volatility of capital flows in the context of a possible deterioration of developments in the international environment, with adverse consequences on emerging economies. The domestic electoral situation in the coming period could also overlap with those risks on a medium term. BNR closely monitors local and global economic developments so that, by adjusting its tools, it can reach its objectives of price stability on a medium term and financial stability.

Joining the euro zone in 2015, out of the question

Romania’s previous target for joining the euro zone, in 2015, is now “out of the question,” said in an interview for New York Times the Governor of BNR Mugur Isarescu, Mediafax reports. Nevertheless, he argued that trying to meet the criteria to join, including keeping budget deficits below 3 percent of gross domestic product, was good discipline. He also mentioned that maintaining its own currency had given Romania the flexibility to set interest rates, control liquidity and allow the currency to depreciate to help rein in the deficit. In the absence of control over monetary policy, he noted, euro zone countries like Greece are forced to rely primarily on fiscal policy: taxing and spending.  “Of course there is a backlash and disappointment because EU accession was seen as a panacea,” he said. “The dreams were too high.”

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