September 27 (SeeNews) - Romania's central bank, BNR, said on Thursday it decided to maintain its monetary policy rate unchanged at 5.25%.
The central bank also decided to maintain the existing levels of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions, it said in a statement.
"Recent assessments show a worsening short-term outlook for inflation, particularly in respect to volatile prices, as some risks highlighted in the latest BNR forecast have materialised, especially those regarding developments in global and domestic food prices," BNR said.
The persistence of a wide negative output gap will, however, further exert disinflationary effects, it added.
"The external environment remained volatile, marred by uncertainties surrounding a lasting solution to the euro area sovereign debt crisis and the developments in the banking systems of some European countries, against the background of worsening growth prospects worldwide," BNR said. "In this context, the high volatility of investors’ risk aversion remains the key coordinate of the external environment, weighing on capital flows.
Romania's annual inflation rate increased to 3.88% in August compared to 3.0% in July.
"The further prudent monetary policy stance is also required by the uncertainty-ridden external environment which, together with domestic developments in the run-up to the elections, could entail an abrupt heightening of the risks associated with the volatility of capital flows and of the exchange rate," the central bank said.
BNR cut its key rate to 6.0% in November 2011 and then by 25 basis points in each of the first three months of 2012, after keeping it unchanged at 6.25% for some 18 months.
"In our opinion, the main reasons for today’s decision are inflationary concerns and external pressures on the Romanian leu, due to Eurozone’s sovereign debt crisis and internal political risks associated with December parliamentary elections," BCR Research said in a note.
"Our current inflation forecast is 4.0% in December 2012, but we could revise it upwards to around 4.5%, due to higher food prices and hikes in administered energy and urban transport prices," it added.
"A rate hike is not completely ruled out in 2013, but our main scenario is that the central bank will tighten control of liquidity through its open market operations," BCR Research said.
The central bank will hold its next rate-setting meeting on November 2.