Romanian central bank keeps benchmark interest rate at 2.50%

BUCHAREST (Reuters) – Romania’s central bank kept its benchmark interest rate unchanged at 2.50% as expected on Wednesday, maintaining a cautious stance in the face of fiscal uncertainty and inflation risks ahead of two elections this year.

The banks’ policymakers, who last hiked rates in May 2018, have since adjusted monetary policy by controlling money market liquidity which they say gives them more flexibility.

The bank has repeatedly said the country’s widening current account deficit – fuelled by expansionary fiscal and wage policies – left the European Union state vulnerable to shifting investor sentiment. Local and parliamentary elections later this year further complicated policymaking.

Inflation stood at 3.8% on the year in November, above the bank’s 1.5-3.5% target. All analysts polled by Reuters had expected Wednesday’s decision.

“We think that monetary policy rate would remain at 2.50% in the coming quarters,” Romania’s BCR bank said in a note.

“The central bank will strike a balance between the external pressure for lower rates … and the domestic need for high rates explained by local inflationary pressures.”

The Romanian leu was flat against the euro at 1125 GMT, unchanged from levels before the meeting.

Governor Mugur Isarescu will hold a news briefing from 1300 GMT.

(Reporting by Luiza Ilie; Editing by Hugh Lawson)