UPDATE 1-Romania’s central bank maintains interest rates and expects inflation to rise
BUCHAREST, Aug.6 (Reuters) – Romania’s central bank kept its benchmark interest rate at 1.25% on Friday, but said it would maintain tight control over money market liquidity, as inflation at short term will be considerably higher than expected.
A majority of analysts polled by Reuters expect the central bank to raise interest rates at the end of the first quarter of 2022, but use market liquidity so far as a way to tighten policy without further disrupt the current account deficit which increased in January. March at its fastest pace in 14 quarters.
The bank said it revised its inflation forecast for 2021 and 2022 above the previous 4.1% and 3.0%, respectively, mainly due to rising energy prices.
While inflation this year is expected to exceed its target of 1.5-3.5%, the bank said it expects it to return slightly below the upper band in 2022.
“The substantial increases in energy prices in July (…) push the annual inflation rate above previously anticipated levels, above the range of variation around the target, which is likely to ‘amplify and extend the transitory inflationary impact of factors on the supply side, “he added. the bank said in a statement.
Policymakers will release the latest inflation forecast on August 9.
The Hungarian and Czech central banks have already raised their interest rates to fight inflation, the first in the EU to do so since the start of the pandemic.
Romania’s high budget and current account deficits have kept its central bank from cutting borrowing costs as much as its peers, which analysts say gave it some leeway before recovering. In July, Governor Mugur Isarescu said the bank was evaluating a timeline for a return to policy normalization.
The Romanian leu was 0.1% weaker against the euro on Friday and down 1.0% overall this year, underperforming its regional peers. (Reporting by Luiza Ilie; Editing by Susan Fenton)