Romania is set to obtain a new €5bn precautionary loan deal from the International Monetary Fund and European Union, its president has confirmed. Traian Basescu said in speech on Sunday that funds would serve as a backstop and would only be drawn if strictly necessary. The safety net will remain in place for two years.

The package is likely to reassure investors given the still lingering risk of a spillover from Europe’s sovereign debt crisis and the impetus the IMF may give to further structural reforms in Romania. Analysts also said a precautionary deal would help lower the government’s borrowing costs. Read more

After Poland and Hungary recently raised rates, Romania and the Czech Republic have both announced decisions to hold, at 6.25 and 0.75 per cent, respectively. It was a close shave in the Czech Republic, however, with 3 of the 7 members voting for a 25bp rate rise. Last meeting only one member voted this way.

Neither country has raised rates since the financial crisis, though in terms of inflation, at least, that is where the similarities end. Czech inflation is running at just 2.3 per cent while Romania’s prices rose 7.96 per cent in the year to December, significantly above the 3.5 per cent target. Raising rates to counter inflation would be tricky, however, as the currency, the leu, is already strong by historical standards: Read more

Ralph Atkins

The European Central Bank, which has championed fiscal austerity across the continent, has scolded Romania’s government for forcing a 25 per cent pay cut on employees of the country’s central bank.

In a strongly-worded statement, the ECB on Monday warned that Romania’s actions violated European Union treaties allowing monetary authorities to operate freely and without political interference. It presaged a similar showdown with Hungary’s government, which plans to cut its central bank governor’s pay. Read more

Romania and Hungary cut interest rates to record lows on Monday as central bankers looked to support growth following improved investor risk perception in central and eastern Europe.

The National Bank of Romania lowered its monetary policy rate from 7 per cent to 6.5 per cent, while the Magyar Nemzeti Bank in Budapest trimmed the base rate from 5.75 per cent to 5.5 per cent, the lowest since the fall of communism.

Romanian and Hungarian currencies have strengthened in recent weeks and it has become cheaper to insure against the risk of their debt defaulting, as investors bet that eastern Europe is gradually overcoming the worst of the financial crisis. Greek banks hold significant assets in Romania, but so far contagion risks appear benign. Read more

The Romanian central bank has cut the monetary policy rate from 7.5 to 7.0 per cent, effective tomorrow. It’s the second time this year the rate has been cut by half a point. The bank has also pledged to maintain adequate liquidity in the banking system and minimum reserve requirements in both leu- and foreign-denominated currencies. All these things suggest Romania is still in the grip of its crisis. Unlike many emerging markets, its currency has not begun to appreciate. There is some good news, though: last week, an IMF team recommended a resumption of payments from the country’s €20bn loan.

Romania could be awash with euros in February, with the possible delivery of $3.2bn delayed and future loan installments from the IMF and EU.

The International Monetary Fund said it will probably resume payments of its $30bn bailout loan for Romania, frozen on November 6 during government collapse. “We’re in discussions for the conditions for the disbursement” of more funds, Jeffrey Franks, head of an IMF mission to Bucharest, told reporters after visiting Romania’s central bank today. “I have reasons to believe it will go ahead.” Read more

Romania’s central bank has lowered the monetary policy rate from 8 per cent to 7.5 per cent, effective tomorrow. The loosening is intended to tackle disinflation, which has stagnated.

The National Bank of Romania has also cut the rate on the deposit facility to 3.5 per cent from 4.0 per cent and the rate on the lending facility (Lombard) to 11.5 per cent versus 12.0 per cent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 17.25 per cent starting with the January 24 – February 23, 2010 maintenance period. Read more