Romanian Central Bank Rate Left at 6.25%

November 2, 2010

At their final scheduled monetary policy meeting of 2010, officials did not change key rates or the required reserve ratio.  The monetary policy rate has been at 6.25% since early May but was reduced by 175 basis points earlier this year on top of 225 basis points of reduction implemented in 2009, mostly in the final seven months of the year. 

Romania has an inflation target band of 2-4% centered on 3% through 2012.  A statement released after today’s decision proposes a reduction in the inflation target to 1.5-3.5% for 2013 and all years after that as a way of anchoring policy.  The midpoint of that band would be slightly more than a half-percentage point above the ECB’s guideline.  Government officials now must agree to the target extension and modification.  The statement also urges fiscal consolidation, as an absolutely essential precondition for successful implementation of the goal of medium-term price stability.  A five-percentage point increase in Romania’s value added tax effective at mid-2010 has already raised headline CPI inflation from 4.4% in June to 7.8% in September, and central bank officials promise to watch vigilantly for any signs of second-order inflationary repercussions.  While this danger lurks, it will be very hard to cut interest rates any further.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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