Key interest rate -The central bank continues anti-inflation war, hikes again the key interest rate

The Central Bank of Romania (BNR) today sent a clear message it will continue to fight inflation as it raised the yearly key interest rate by 0.5 percentage points, to 9.5 percent; this is the fourth such move since October last year when BNR started the crusade against inflation.

Romania has the highest benchmark interest rate in the European Union and the national currency has been dropping since the beginning of the year.

The central bank kept the present interest levels for the mandatory minimum reserves. These amount to 20 percent of the banks’ lei debts and 40 percent for the foreign currency debts. Banks are required to form reserves until the 23rd of each month; BNR also changed the interests paid to banks for these reserves, starting with February 24-March 23.

The central bank hiked the interest paid to lei deposits from 2.60 percent to 3.05 percent per year. Romania’s key financial body lowered the interest paid for U.S. dollars deposits by 0.45 percentage points, to 0.85 percent. The interest for euro deposits stagnated at 1.25 percent per year.

BNR noted it will further impose firm management on the liquidity in the monetary market in a bid to keep the interest levels close to the monetary policy interest.

Analysts expected BNR’s move of raising the key interest rate. Economists believe hiking the key interest rate will have visible impact in several months and will put pressure on Romania’s future inflation rate. Several voices said this could be the last move this year towards a harsher monetary policy. Yet, things could be different if supplementary inflationist pressures appear or if the leu falls again.

Romania’s leu crashed at the end of 2007 against Europe’s single currency after strong advance throughout the year. The beginning of the year saw the same negative trend, the leu trading now at 3.72 versus 3.3 last year.

The annual inflation rate in Romania stood at 8 percent in February, the fifth in the European Union, while the average annual inflation rate stood at 5.5 percent, according to the bloc's statistics body, Eurostat.

Inflation in Romania hiked 0.7 percent in February against January and reached 7.97 percent, below the analysts' gauge, the National Statistics Institute (INS) said on February 11.

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