Bloomberg News

Romanian Central Bank Leaves Key Rate Unchanged for 11th Meeting

September 29, 2011

Sept. 29 (Bloomberg) -- Romania’s central bank left its benchmark interest rate unchanged for an 11th meeting to shield the currency from weakening during the euro-area debt crisis, holding off monetary-policy easing needed to spur growth.

The Banca Nationala a Romaniei kept the main rate at 6.25 percent, the European Union’s highest, the Bucharest-based bank said in an e-mail today. The decision was expected by all 13 economists surveyed by Bloomberg. It also left its minimum reserve requirements on foreign-exchange deposits at 20 percent and the ratio for leu deposits at 15 percent.

Central banks across the region are seeking to balance the risks of slower growth in western Europe, the main importer of goods from its eastern neighbors, and weaker currencies as investors cut exposure to emerging-market assets. Romanian policy makers have kept interest rates stable since June 2010 as they assess the impact of the global slowdown and fading effect of a tax increase on prices.

“Even though the overall domestic landscape would rather suggest relaxing monetary policy, we see the central bank remaining prudent,” Banca Comerciala Romana SA economists led by Lucian Anghel said. “Recent experience has taught us that Romania’s stronger economic fundamentals pale when foreign investors’ fears take over and their negative impact feeds through the local foreign-exchange rate quickly and strongly.”

Poland’s central bank left borrowing costs unchanged in September on expectations inflation will slow and the economy will weaken. Hungary kept its benchmark interest rate steady for an eighth month Sept. 20, while the Czech central bank followed suit two days later.

VAT Effect

Romanian policy makers have kept rates on hold after an increase in the value-added tax rate to meet international bailout pledges boosted inflation to the fastest in two years. Before that, the bank lowered borrowing costs four times to combat the worst recession in two decades.

Romania’s inflation rate fell to the lowest in 17 months in August, dropping more than economists forecast, as a bumper harvest boosted food stocks. It declined to 4.25 percent from 4.85 percent in July, the lowest since March 2010, the National Statistics Institute said Sept. 12.

The inflation rate should fall within policy makers’ target range of 2 percent to 4 percent in 2012, with price growth to slow to 3.3 percent in the first quarter before accelerating to 3.5 percent by the end of the year, according to a central bank forecast.

The central bank scheduled its last interest-rate meeting for this year on Nov. 2, and said it will provide more details on its decision later today.

Economic growth slowed to 1.4 percent from a year earlier in the second quarter compared with 1.7 percent in the first. Romania is on track to meet a forecast of 1.5 percent growth for this year, Prime Minister Emil Boc said on Aug. 17.

--With assistance from Barbara Sladkowska in Warsaw. Editors: James M. Gomez, Douglas Lytle

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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