Romania CB Holds Rates Steady

Romania's central bank left its key interest rate unchanged on Wednesday, as it expects inflation to fall within its target in the coming months.

The board of the National Bank of Romania left its monetary policy rate unchanged at 2.50 percent, in line with economists' expectations.

The bank kept its deposit facility rate at 1.50 percent and the lending facility rate at 3.50 percent.

The central bank also decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

"The latest assessments reconfirm the outlook for the annual inflation rate to decline further towards the upper bound of the variation band of the target at the end of this year, in line with the August 2018 medium-term forecast," the bank said in a statement. Headline inflation rose to 5.1 percent in August, which was well above the bank's 1.5-3.5 percent target range. Wages continue to rise at double-digit rate and the GDP growth is above potential. The current account deficit widened to a five-year high. Capital Economics economist Liam Carson expressed concern that the monetary policy would not be tightened aggressively enough. "This could result in a build-up of economic imbalances and cause inflation expectations to become unanchored," the economist said. "We think that further interest rate hikes are needed to cool the economy," Carson added.

Capital Economics expects the NBR to raise the policy rate to 4.25 percent by the end of next year, which means more hikes than what markets currently forecast.