Key policy rate - Central bank increases rate on worries that consumption may hike inflation

The previous key policy rate stood at 7.50 percent. BNR will keep the present interest levels for the minimum mandatory reserves imposed on banks. These stand at 20 percent of banks' lei debts and 40 percent for hard-currency debts.

The central bank explained the overall demand level it is not backed by Romania's offer for goods and services. This has two main effects: it affects the external balance of payments and stimulates inflation, which widened over BNR's 4 percent target. The Consumer Price Index in November 2007 widened to 6.67 percent.

BNR emphasized the main reason for the high consumption level resides in the increase of salaries, which exceeds labor productivity.

BNR revised upwards the yearly inflation for December 2007, to 5.7 percent, following a worldwide hike in food prices which was not tempered by imports and which affected Romania.

The hike prompted BNR to increase the monetary policy interest rate from 7 to 7.5 percent.

Source: NewsIn