Reuters: US Dollar Report: UPDATE 1-Romania cbank holds rates on inflation, currency

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UPDATE 1-Romania cbank holds rates on inflation, currency Jan 7th 2013, 11:51 Mon Jan 7, 2013 6:51am EST * Keeps rates at record low 5.25 percent * Balances inflation, weak currency with slow economy BUCHAREST Jan 7 (Reuters) - Romania's central bank held interest rates unchanged at a record low on Monday, seeking to balance above-target inflation and a still weak currency with an economy on the brink of recession. While neighbours such as Poland, the Czech Republic and Hungary have cut rates to help their economies, Romania -- the European Union's second-poorest member and relying on an International Monetary Fund deal -- has had to keep a premium to maintain investor interest. The benchmark interest rate remained at 5.25 percent, as had been forecast by all 13 analysts in a Reuters poll. The central bank halted a rate cutting cycle in May 2012 due to persistently high inflation -- which was an annual 4.6 percent in November, versus a 2-4 percent target -- and a series of government changes that sent the leu currency to a record low. "The next move may well be a cut, but inflation has to drop closer to the target before the NBR can begin cutting," said Barclays Capital economist Daniel Hewitt. Rates have remained on hold since, with the central bank introducing market liquidity controls to tighten policy, and the leu has regained some ground since the leftist government secured a new mandate in a Dec. 9 election. That means leftist Prime Minister Victor Ponta can now negotiate a new deal with the IMF to replace a 5 billion euro agreement expiring in March, which is an important reassurance to foreign investors that Romania will keep tight fiscal policy. But the currency remains within about 5 percent of its record low against the euro and the threat of more political instability -- with Ponta having to work with his rival, President Traian Basescu -- limit the central bank's room to manoeuvre. The central bank will hold a press conference on the decision at 1300 GMT. Link this Share this Digg this Email Reprints

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