November 6, 2018 / 10:54 AM / 11 days ago

UPDATE 2-Romanian central bank keeps benchmark rate unchanged

* Romania’s central bank keeps benchmark interest rate unchanged

* Analysts see tightening circle continuing in 2019

* Bank forecasts inflation to fall to 3.5 percent in December (Adds details)

BUCHAREST, Nov 6 (Reuters) - Romania’s central bank held its benchmark interest rate unchanged at 2.50 percent on Tuesday at its last meeting of the year.

With the bank expecting inflation to fall sharply by year-end, analysts polled by Reuters had expected the decision.

But they see a tightening cycle continuing in 2019, with the median forecast putting the benchmark rate at 3 percent at the end of next year.

Higher energy prices and consumption-friendly wage hikes have driven annual inflation in the import-reliant European Union state to multi-year highs of around 5 percent this year.

The bank has raised interest rates three times by 75 basis points in all, with the latest hike in May. Since then, it has controlled liquidity in the market through repo and deposit tenders, which have helped keep market rates near its benchmark.

The bank forecasts inflation will fall to 3.5 percent in December, the upper margin of its 1.5-3.5 percent target range, driven by base effects and a slowdown in consumption.

The bank will release new inflation forecasts this month.

Erste’s BCR said in a research note that policymakers could hike rates next year to stave off weakening pressures for the leu currency, as inflation would remain high in the first half, under pressure from excise tax increases.

“Once the ECB begins to contemplate rate hikes, the external environment will begin to play a greater role in the decisions taken by the central bank,” BCR added in a statement.

At 1045 GMT, the leu traded at 4.6635 per euro, 0.1 percent lower on the day but unchanged from levels before the decision.

Governor Mugur Isarescu is expected to provide details on the decision from 1300 GMT. (Reporting by Luiza Ilie; editing by John Stonestreet and Ed Osmond)

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