Romania seeks to prevent inflows of speculative funds

BUCHAREST – Romania’s central bank (BNR) will only partly drain liquidity from the leu money market to avoid hiking interest rates and deter hot money from flooding the booming economy, governor Mugur Isarescu said yesterday. Analysts say hopes of a leu currency appreciation are prompting yield-hunters from abroad to pump billions of euros into Romanian assets as the European Union candidate country approaches accession, as early as 2007. «When we feel that short-term and very short-term capital is behind a treasury transaction, we will be seeking to prevent them from achieving their expected gains,» Isarescu said in a statement to private news agency Mediafax, sent to Reuters by his office. Isarescu said the bank was determined to leave some excess liquidity in the market to keep interest rates at a level that would discourage speculators. «There is plenty of money on the market which has nothing to do with the real economy,» Isarescu said. «There are funds which come here to speculate and then leave. These funds are a big source of financial instability.» The BNR has stepped into the money market only once in 11 trading days to drain leu funds via one-month deposit tenders since merging its key interest rates to a single 8.5 percent benchmark on August 9, to make its policy more transparent. The BNR’s quasi-absence from the money market triggered a drop in short-term interbank interest rates to 3/7 percent from 6/8 percent before it merged its key rates, dealers said. The BNR shifted its focus from targeting the exchange rate to targeting inflation last week, but it was forced to intervene in the foreign exchange market for four days in a row to tame a rising leu, in a challenge to its own policy switch. Isarescu said that increased leu liquidity might prompt some commercial banks to lower deposit rates for individuals, but that would be an isolated phenomenon. «Some banks may consider lowering rates for deposits. But I count on the serious banks with strategic thinking and involvement in the economy, which look after their clients on the credits and deposits side, such as BCR,» Isarescu said. «We are not against cheaper resources from abroad, but if we allow too many funds, people might get used to not saving money any more,» he added.

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