UPDATE 1-Romania's central bank holds benchmark rate at 7.00%

(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.

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)