Wednesday, December 10, 2008

Fitch expects central bank to defend local currency.

Source: IntelliNews - Romania Today

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Fitch expects central bank to defend local currency. The central bank will prevent a major depreciation of the local currency by pursuing tight monetary policies, comments Andrew Colquhoun, analyst of rating Agency Fitch. He explains that sudden exchange rate correction would generate inflation and deteriorate the stability the financial system under the circumstances of strong currency substitution. The inflation would moderate under the tight monetary policy and helped by the demand-side factors to 4% on average in 2009 from 7.9% y/y in the past year, according to estimates of Fitch analyst. We recall that the central bank’s monetary policy undergoes major adjustments as the monetary authority is shifting from net debtor to net creditor position on the money market. The central bank plans to replace the policy interest rate, until now defined as the rate paid for one-week funds drained from the money market, with the interest rate of some standardised instrument used in the future to inject funds on the money market. The policy interest rate reached currently 10.25% following repeated rate hikes over the past year, but this is no longer particularly meaningful as the banks tend to use rather the lending facility of the central bank under which overnight funds are available at the 14.25% Lombard rate.

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Fitch expects central bank to defend local currency.

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