September 30, 2017 / 12:52 PM / 10 months ago

Romanian PM criticises central bank for interbank rate rises

BUCHAREST, Sept 30 (Reuters) - Romanian Prime Minister Mihai Tudose criticised the central bank late on Friday for failing to curb a rise in interbank interest rates.

A central bank director countered the criticism, which he called political, by saying interest rates were bound to rise given an expected jump in inflation.

The three-month ROBOR rate, the average interbank lending interest rate, reached 1.58 percent on Friday for three-months, its highest level since 2015, driven by surging inflationary expectations.

The three-month rate is used to determine interest rates for several leu-denominated loans.

Both electricity and gas tariffs for households will rise from Oct.1. Earlier this year, the government also approved a hike in excise duties for fuels, all of which are going to push inflation higher.

The ruling Social Democrats have gone backwards and forwards on their tax intentions this year, often announcing measures without assessing their impact and then backing out, provoking uncertainty among investors and weighing on assets.

“I think our colleagues, Romanians’ colleagues or those who should be that at the central bank were away from home, because that’s their role, to not let (rates) rise,” Tudose told reporters after a senior party meeting in the northeastern Romanian resort of Sucevita.

“I haven’t had a talk with the governor and I might have one next week. We should at least know if it is still the national bank of Romania or whether it is a structure for gods concerned with their own existence..”

Earlier this year, Tudose has said the government might release a list of banks that have not reported a profit, feeling “duty bound to tell Romanians which are the banks where there is a danger for them to hold deposits.”

The government has already raised public sector wages and pensions and plans further hikes as well as tax cuts for 2018, and the European Commission expects Romania to run the EU’s largest budget deficits this year and next.

The central bank’s benchmark interest rate stands at 1.75 percent, but policymakers are nearing the start of a tightening cycle. They currently forecast inflation at 1.9 percent in 2017 and 3.2 percent next year.

“The discussion about ROBOR is completely disproportionate,” Eugen Radulescu, the central bank’s financial stability director was quoted as saying by daily Ziarul Financiar on Saturday. “We are talking about a 50 basis points rise. Inflation has risen more.”

“The interest rate cannot be small when inflation is high. The time of small interest rates is near the end.” (Reporting by Luiza Ilie; Editing by Stephen Powell)

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