Government debt yields had also fully corrected in March
while investors dealt with banking turmoil and revised rate
outlook expectations from the world’s major central banks.
Central bank Governor Isarescu has said rate cuts will
likely not happen before interest rate levels and inflation
meet. He has also said that a firmer leu currency would not help
lower inflation sustainably.
(Reporting by Luiza Ilie; Editing by Ed Osmond)
(Adds analyst comment, details)
BUCHAREST, April 4 (Reuters) - Romania's central bank
kept its benchmark interest rate on hold at its
highest level in more than a decade on Tuesday for the second
consecutive month, warning of elevated uncertainty even as it
sees inflation falling at a faster pace.
The decision to keep the key rate at 7.00% was expected by
analysts. A majority expect borrowing costs to remain on hold
throughout 2023, potentially longer than for other central banks
in central and eastern Europe.
Policymakers across the region are counting on a gradual
slowdown in price growth in the first half before a sharper drop
later this year and are guiding steady interest rates for now.
Romania’s central bank said latest data indicated inflation
will "probably fall at a faster pace over the following months,
in line with medium-term forecasts", driven by lower commodity
prices and a domestic government energy support scheme.
The bank said the slowdown in economic activity in the
first quarter would be more subdued than expected, although
still pronounced on a year-on-year basis, while a slowing core
inflation rate was countered by the gradual pass-through into
consumer prices of increased costs of materials and wages.
The bank expects inflation to fall to 7.0% in December, from
February's 15.5%. It sees inflation at 4.2% at end-2024, still
above its 1.5%-3.5% target band.
"A shift towards interest rate cuts is unlikely any time
soon," Liam Peach, senior emerging Europe economist at Capital
Economics, said in a research note.
"Core price pressures remain strong and economic activity
has been more resilient than both we and the NBR expected in
recent quarters," he added.
"In our view, the first interest rate cut probably won’t
arrive until early 2024 once policymakers feel more confident
that price pressures have eased and that inflation will soon
return to target."
The Romanian leu was up 0.1% against the euro by 1320 GMT.
The bank said the leu had been strengthening in recent
months reflecting the high relative attractiveness of
investments in domestic currency.
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