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Romania's central bank keeps up tightening pace, raises key rate to 6.25%

Kitco News

BUCHAREST, Oct 5 (Reuters) - Romania's central bank on Wednesday raised its benchmark interest rate (ROINTR=ECI) by 75 basis points to 6.25%, more than expected, keeping up the pace of tightening saying the short-term inflation outlook has worsened.

Most analysts were expecting policymakers to slow the pace of rate hikes, mindful of the risks of high borrowing costs on economic growth.

The Romanian leu edged up 0.1% against the euro after the policy decision.

The bank said data pointed to a strong deceleration of quarterly economic growth in July-September and more widely of domestic consumption, but it also said supply-side shocks were amplifying inflationary effects.

"The annual inflation rate will probably stick to an upward path towards year-end, under the impact of supply-side shocks, yet at a visibly slower pace,” the bank said in a statement.

Under its current forecast, the bank expected inflation to start falling from its 19-year highs as of the fourth quarter, but remain in double digits for most of next year and only re-enter its 1.5%-3.5% target band in the second quarter of 2024.

Policymakers, who have said they will slow down the pace of tightening once data confirmed inflation's downward path, will release new forecasts in November.

The bank's ninth consecutive rate increase in a year for a total of 500 basis points brings Romania's key rate to an 11-year high, but this still lags its peers in the region.

Instead, the bank has used a firm grip on liquidity to push Romanian market rates above its benchmark, effectively making monetary conditions tighter. On Wednesday, it raised its lending facility rate to 7.25% from 6.50% and its deposit rate to 5.25% from 4.50%.

The bank gave "little away in terms of (its) next move," Capital Economics said in a note. "We think the NBR will continue playing catch-up with other central banks in CEE, with interest rate hikes for a little while yet."

Most analysts expected one further quarter point hike at the bank's Nov. 8 meeting.

Central European policymakers are seeking to end a cycle of interest rate hikes running since last year even as inflationary pressures remain and the world's major central banks keep pursuing higher rates. read more

Reporting by Luiza Ilie; Editing by Jane Merriman
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