Romania’s central bank said it will reassess its monetary-policy stance after government talks over a rainy-day loan broke down with contagion from Greece threatening the financial system.
After six straight reductions, the bank kept its benchmark interest rate at 1.75 percent on Wednesday, matching the predictions of 19 of 20 economists in a Bloomberg survey.
Policy makers will review their position on borrowing costs, the rate corridor and how much lenders must set aside against deposits, Governor Mugur Isarescu told reporters in Bucharest.
The bank is reconsidering its outlook after tax cuts to firm up support for Prime Minister Victor Ponta torpedoed talks with the European Union over a back-up credit pact.
The fiscal easing will trigger a temporary bout of deflation, according to Isarescu. The EU’s fastest-growing economy is also at risk from Greek lenders controlling 12 percent of its banking assets.
“Monetary policy can’t have the same setup anymore considering the current fiscal easing,” Isarescu said. The reassessment “refers mainly to our calendar for reducing the minimum reserve requirements.”
As Greek fallout hurts asset prices in surrounding nations, the leu weakened 0.7 percent this week, paring its 2015 advance to 0.2 percent, data compiled by Bloomberg show. It was little changed after Isarescu’s remarks. Yields on euro-denominated government debt fell four basis points to 2.97 percent.
‘Strong Emotions’
While Isarescu said currency volatility may persist, he attributed recent swings to “strong emotions.”
He downplayed Greek lenders’ significance to Romania’s banking industry. The central bank’s statement “seems to have taken the prospect of further rate cuts off the table,” William Jackson, an analyst at Capital Economics in London, said in an e-mailed note.
“Unless ‘Grexit’ concerns were to lead to a sharp sell-off in the leu, which seems unlikely, we don’t think the MPC will be under pressure to raise rates any time soon.”
Romania is loosening fiscal policy before elections next year as Ponta battles graft allegations. Uncertainty at home and abroad means the central bank can’t support the government’s plans, according to Isarescu, who said lowering banks’ reserve requirements to 2 percent now looks over ambitious.
Isarescu urged a resumption of negotiations with the EU and the International Monetary Fund, saying the government’s plan isn’t “credible without the cooperation with our international partners.”
bloomberg.com
After six straight reductions, the bank kept its benchmark interest rate at 1.75 percent on Wednesday, matching the predictions of 19 of 20 economists in a Bloomberg survey.
Policy makers will review their position on borrowing costs, the rate corridor and how much lenders must set aside against deposits, Governor Mugur Isarescu told reporters in Bucharest.
The bank is reconsidering its outlook after tax cuts to firm up support for Prime Minister Victor Ponta torpedoed talks with the European Union over a back-up credit pact.
The fiscal easing will trigger a temporary bout of deflation, according to Isarescu. The EU’s fastest-growing economy is also at risk from Greek lenders controlling 12 percent of its banking assets.
“Monetary policy can’t have the same setup anymore considering the current fiscal easing,” Isarescu said. The reassessment “refers mainly to our calendar for reducing the minimum reserve requirements.”
As Greek fallout hurts asset prices in surrounding nations, the leu weakened 0.7 percent this week, paring its 2015 advance to 0.2 percent, data compiled by Bloomberg show. It was little changed after Isarescu’s remarks. Yields on euro-denominated government debt fell four basis points to 2.97 percent.
‘Strong Emotions’
While Isarescu said currency volatility may persist, he attributed recent swings to “strong emotions.”
He downplayed Greek lenders’ significance to Romania’s banking industry. The central bank’s statement “seems to have taken the prospect of further rate cuts off the table,” William Jackson, an analyst at Capital Economics in London, said in an e-mailed note.
“Unless ‘Grexit’ concerns were to lead to a sharp sell-off in the leu, which seems unlikely, we don’t think the MPC will be under pressure to raise rates any time soon.”
Romania is loosening fiscal policy before elections next year as Ponta battles graft allegations. Uncertainty at home and abroad means the central bank can’t support the government’s plans, according to Isarescu, who said lowering banks’ reserve requirements to 2 percent now looks over ambitious.
Isarescu urged a resumption of negotiations with the EU and the International Monetary Fund, saying the government’s plan isn’t “credible without the cooperation with our international partners.”
bloomberg.com
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