Romania central bank cuts rates, stocks rise on stimulus hopes

BUDAPEST: Romania's central bank unexpectedly cut its benchmark interest rate by 25 basis points to 1.50% on Wednesday and pledged to continue providing liquidity as the economy reels under the impact of the coronavirus pandemic.

Analysts in a Reuters poll had expected the bank to hold fire this month. The Romanian central bank has so far delivered three rate cuts worth 1 percentage point overall since March.

The Romanian leu was flat versus the euro after the decision.

Elsewhere, Central European stock indices gained as global markets looked forward to further stimulus measures in the United States and better-than-expected European earnings reports lifted investor sentiment.

Budapest's stock index gained 2% and Prague's rose 1%. Warsaw was up 1.2% while Bucharest added 0.8%.

The Czech crown gained 0.36% and was trading at 26.080 versus the euro before the central bank's rate meeting on Thursday. The bank is likely to keep interest rates on hold, according to a Reuters poll.

The Hungarian forint gained 0.43% to trade at 344.70 per euro.

Yields on the longest-dated Hungarian government bonds have come down substantially, by around 40 basis points, since the central bank last month resumed its quantitative-easing programme, which began in early May but was suspended after a few weeks.

The Hungarian central bank bought $34.09 million worth of 15-year and 20-year government bonds from local banks on Tuesday. Yields edged higher at that auction, which one trader said was a normal correction after the falls since the July rate meeting.

"There was a significant drop in yields on the two longest-dated bonds (15-year and 20-year) after the announcement of the central bank," an FI trader in Budapest said.

"Yields on 10-year bonds are also down, but that was also affected by international trends, by 10-year yields dropping in the US and Germany."

According to the Eikon page of the Hungarian Debt Management Agency, the yield on the 20-year bond was 2.76% and 2.60% on the 15-year bond, each more than 40 basis points lower than before the announcement of the National Bank of Hungary in July.