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UPDATE 1-Romania cbank holds rates at 6.25 pct as expected

Published 08/04/2010, 07:14 AM
Updated 08/04/2010, 07:20 AM

* Maintains level of minimum reserve requirement for banks

* Analysts see rates remaining unchanged for rest of year

* Leu currency little changed after decision

(Adds details on economy, comment, currency)

BUCHAREST, Aug 4 (Reuters) - Romania's central bank left its main interest rate unchanged at 6.25 percent on Wednesday, in line with expectations it would wait for more data to assess the impact of a tax hike on inflation and an economic recovery.

Romania's international lenders extended a 20 billion euro bailout programme on Wednesday, reassuring investors spooked by the country's deep recession, though it may face tougher compliance hurdles in future.

To comply with terms of the International Monetary Fund-led package, Romania slashed public sector salaries by 25 percent and raised value added tax by five percentage points, which is expected to push inflation sharply higher.

The central bank has to balance that inflation outlook with the need to bolster the stuttering economy, which shrank by more than 7 percent last year and is still stuck in recession.

"It shows that monetary policy remained prudent. I don't see tightening happening this year," said Melania Hancila, chief economist at Volksbank in Bucharest.

"The trend is of relaxation and we can see that the central bank lets liquidity in the market."

The central bank also said it would maintain the current level of minimum foreign exchange reserve requirement for banks, which some analysts had expected to be cut to inject more liquidity into the system and ease pressure on the leu currency.

The leu was little changed after the decision and was trading down 0.3 percent on the day at 4.25 per euro by 1047 GMT.

All analysts polled by Reuters last week expected the central bank to leave borrowing costs flat at a record low for the second meeting in a row following 400 basis points worth of easing since the start of last year. (Reporting by Radu Marinas, Marius Zaharia and Sam Cage; editing by Stephen Nisbet)

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