Wednesday, September 30, 2009

Romanian cbank cuts rates 50 bps, govt rifts weigh

By Marius Zaharia
BUCHAREST, Sept 29 (Reuters) - Romania's central bank cut its key interest rate by 50 basis points to 8 percent on Tuesday but domestic political uncertainties may temper future cuts, analysts said.

Many economists predict further easing in Romania as it struggles with scarce credit, plummeting consumption and lower investment, mirroring cuts elsewhere in eastern Europe as central banks combat recessions.

Hungary cut rates by 50 basis points to 7.5 percent on Monday and last week the Czech Republic left interest rates unchanged at a record low of 1.25 percent. Poland is expected to leave rates flat at 3.5 percent on Wednesday.Some analysts said concerns over the stability of Bucharest's coalition government and its ability to meet targets set by the International Monetary Fund in return for aid would make the central bank more cautious.'The central bank will have to slow down with its monetary easing given the political uncertainties in the background,' said Raffaella Tenconi of Wood&Co in Prague.'I think the bank will remain on hold for a few months. However, I still see a 100 basis points reduction over a 12-month period.'

Government party leaders held an emergency meeting with President Traian Basescu on Tuesday to discuss a standoff over the sacking of the interior minister which now threatens to break up the ruling coalition.The leftist grouping in Romania's uneasy coalition threatened on Monday to leave the nine-month-old government if the country's president endorsed the prime minister's decision to sack the minister.

The central bank said in a statement after the rate decision that firm implementation of economic policies and IMF-mandated reforms was 'essential' to ensuring the Romanian economy returns to sustainable growth.But it made no comment on the political situation or its implication for policy-making.

Meanwhile, parliament postponed a hearing of central bank Governor Mugur Isarescu, who was due to answer questions ahead of a vote to reappoint him after his mandate expires next month.Isarescu, one of the world's longest-serving central bankers, is widely expected to win a new mandate, seen as positive for policy stability on the market.

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