Wednesday, November 11, 2009

Romania rates not exaggerated given image-cenbanker

BUCHAREST, Nov 10 (Reuters) - Romania's benchmark interest rate of 8 percent is high, but not exaggerated considering the inflation rate and investors' higher perception of risk, deputy central bank Governor Cristian Popa said on Tuesday.

Earlier this month, the central bank surprised markets by keeping its benchmark interest rate unchanged, leaving Romania with the highest borrowing costs in the European Union.

It also upped its annual inflation forecast for December to 4.5 percent, the top end of its 2.5 percent-4.5 percent inflation target range and said political uncertainty that has delayed vital aid cash had pushed it into wait-and-see mode on rates.

The International Monetary Fund stopped reviewing Romania's 20 billion euro aid package on Friday and delayed rescue funds pending the resolution of a political crisis.

'We must also judge in terms of real interest rates. Certainly 8 percent is very much high when the next is 7 percent in Hungary or Turkey, for instance,' Popa told local television station The Money Channel.

'But the real interest rate must also be corrected with the difference between the risk premium investors perceive now for exposure to Romania compared with the risk premium for the euro zone. The interest rate is not exaggerated at the moment,' he added.

Economists have said the central bank would keep interest rates flat at least until February as Romania struggles with a political deadlock that has stalled reforms.

Political woes mounted with the collapse of the government early in October and are widely expected to last until after the outcome of a second round of presidential polls due on Dec. 6.

Popa said the decision to hold rates -- which followed 225 basis points in easing earlier this year -- was not a change of direction, but a pause 'that answers the need for stability and confidence that the Romanian economy needs at the moment.'

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