(Adds governor comments)
BUCHAREST, April 5 Romania's central bank left
its benchmark interest rate unchanged at a
record-low 1.75 percent on Wednesday, as expected, balancing low
inflation against underlying pressure from rising wages.
Governor Mugur Isarescu said inflation would remain
significantly below the central bank's 1.5-3.5 percent target in
the coming months and likely push through the lower margin
towards the end of the year.
Inflation edged up 0.2 percent on the year in February.
Consumer prices were in negative territory throughout 2016,
driven by tax cuts and low fuel and energy prices.
The central bank forecasts inflation will reach 1.7 percent
by the end of the year. But it expects wage rises and strong
consumption to push inflation to 3.4 percent by the end of 2018.
The net average monthly wage rose by 18.4 percent to 2,300
lei ($542.08) in January, driven by labour shortages and sharp
hikes in the public sector. The government plans more hikes over
four years under a single wage bill for public administration.
Romania is the European Union's second poorest country.
"There are labour shortages in several sectors," Isarescu
said. "Wage rises are inevitable and ... what must be done is to
keep them under control in a reasonable manner. Wage rises are
not ... a problem, but their scope and dosage are."
The central bank has kept its benchmark rate steady at 1.75
percent since May 2015.
It has signalled that it may first shift monetary policy not
via its key rate but by narrowing the gap between its lending
and deposit rates, which would in turn affect interbank rates.
On Wednesday, Isarescu said the bank's goal was to narrow
the corridor to 1 percentage point from the current 1.5 percent
to boost the effectiveness of its benchmark rate, but that the
timing of such a move depended on short-term capital inflows.
"Narrowing the corridor to plus/minus 1 percent is a stated
goal and ... it depends on capital flows. Short-term capital
inflows are not sustainable, it is one of the big problems
exposed by the financial crisis and ... especially so for
The leu was up 0.3 percent on the day against the
euro at 1445 GMT.
Isarescu also said the bank would continue to look for
windows of opportunity to further cut minimum reserve
requirements for commercial banks’ hard-currency liabilities.
(Reporting by Luiza Ilie; editing by Mark Heinrich)