Romania: Key rate remains on hold at 2.50%

If it weren’t for the “maintaining strict control over money market liquidity” mention, we could say that a clear dovish twist has appeared in NBR’s governor Mugur Isarescu speech. Even on this liquidity topic though there is a clear shift in language as the previous press release mentioned a “tightening control over money market liquidity” while the current one suggests only a maintaining of the current stance.

While the press release itself is fairly balanced, the governor’s subsequent briefing offered a lot more to chew on. There were unusually blunt references to the exchange rate, with governor Isarescu saying more than once that “we don’t want the exchange rate to appreciate”. This was done in the context of several references to the trade balance and current account deterioration.

While observing the deterioration trend, governor Isarescu emphasised that Romania is not even close to the pre-crisis levels and that one of the main preoccupations of the central bank will be to “keep inflation around current levels” without deteriorating the external deficits. “Significant” capital inflows were mentioned, “which could mean that the interest rate differential is attractive enough”. In fact, even on this key rate topic the governor has been very straightforward, saying that “judging by the exchange rate developments, the key rate is high enough”.