August 6, 2018 / 1:35 PM / in 2 months

UPDATE 2-Romania central bank signals possible pause in rate hikes at 2.5 pct

(Adds governor comments)

BUCHAREST, Aug 6 (Reuters) - Romania’s benchmark interest rate may not rise much higher than its current level as consumer price inflation will begin to fall, central bank Governor Mugur Isarescu said on Monday.

The bank held its benchmark interest rate at 2.50 percent on Monday, against market expectations for a quarter point hike.

Isarescu said inflation would fall towards the bank’s 1.5-3.5 percent target by the end of the year, adding the bank made the right call when it decided to start tightening at the start of the year, preventing the need for higher rate hikes.

Asked whether this meant the end of the tightening cycle was near, Isarescu said:

“I cannot say at present that the board has mandated me to say that we have won the war, but a battle was won as it is clear inflation is starting to come down. There are indeed chances that the interest rate will not rise too much.”

“We are not in a position to say that we will not hike the rate anymore. We do not know what is happening in Europe and what the word normalisation means.”

The leu was trading down 0.5 percent on the day at 4.6400 against the euro at 1300 GMT.

Monetary conditions in Romania have tightened over the past four months, with the interbank ROBOR rate ask quote rising by 136 bps to 3.40 percent, well above the benchmark rate, which has itself risen 75 basis points since January.

Five of eight analysts polled by Reuters expected the central bank to hike the monetary policy rate to 2.75 percent, the same as the median forecast for the rate at end-2018.

Romanian consumer price inflation was unchanged at 5.4 percent on the year in June, well above the central bank target of 1.5-3.5 percent for this year. The bank forecasts inflation at 3.6 percent at the end of December. Isarescu will release updated forecasts on Aug. 8. (Reporting by Luiza Ilie and Radu Marinas; Editing by Alison Williams)

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