(Updates with economist comments from fourth paragraph.)
Oct. 11 (Bloomberg) -- Romania’s inflation rate fell more than expected in September to the lowest level in two decades as a bumper harvest lowered food prices, giving policy makers scope to cut the European Union’s highest borrowing costs.
Inflation slowed to 3.45 percent, within the central bank’s target, from 4.25 percent in August, the National Statistics Institute in Bucharest said today in an e-mailed statement. The decline exceeded the median forecast of 4 percent by 11 economists surveyed by Bloomberg. Prices fell 0.2 percent on the month.
Central banks in eastern Europe including Romania have kept rates on hold in past months on expectations inflation will slow and economies will weaken because of a deceleration of growth in western Europe, the main importer of goods from the region.
“Even if the food price dynamic proves to be transitory, inflation is coming back to target sooner than expected, which opens the door for rate cuts in the near term,” said Bank of America Merrill Lynch economist Raffaella Tenconi, who sees rates unchanged in 2011 and 2012. “Our rate call was based on a slower disinflation path and the contagion risks from the” EU- sovereign debt crisis. If both issues improve, then there is the opportunity for a rate cut sooner than thought.’’
Romania probably will cut interest rates after an accord is reached on the 2012 budget with the International Monetary Fund and the European Union and inflation slows to within the target, central bank Chief Economist Valentin Lazea told Hotnews.ro yesterday.
November Policy Meeting
The Banca Nationala a Romaniei kept the EU’s main rate at 6.25 percent for an 11th meeting on Sept. 29, refraining from a cut that would spur capital outflows and weaken the leu. The next rate-setting meeting is scheduled for Nov. 2.
The leu, the sixth-best performer among more than 20 emerging-market currencies tracked by Bloomberg so far this year, weakened 0.3 percent to 4.3290 per euro as of 11:08 a.m. in Bucharest trading.
Today’s data confirms a prediction by central bank Governor Mugur Isarescu who said on Oct. 5 that the inflation rate would fall this year within the central bank’s target of 3 percent, plus or minus 1 percentage point, for 2011 and 2012 on lower food costs and as the effects of a government tax increase dissipate.
Food-price growth slowed to 1.7 percent in September from a year earlier, compared with 3.8 percent in August, on plunging potato, vegetable and fruit prices, according to the institute.
Non-food costs dropped to 4.8 percent in the last month from 4.9 percent in August, while service prices were unchanged at 3.5 percent from the previous month, the institute said.
“We expect the inflation to remain at low levels until mid-2012 and start rising again when a new harvest, probably worse than this year, is in place,” ING Bank Romania SA economist Nicolaie Alexandru-Chidesciuc said today. “The central bank probably won’t hurry to cut rates this year because of leu depreciation pressures and we expect a first cut to happen as early as February because of slower-than-expected economic growth next year.”
--With assistance from Barbara Sladkowska in Warsaw and Andra Timu in Bucharest. Editor: Douglas Lytle
To contact the reporter on this story: Irina Savu in Bucharest at firstname.lastname@example.org.
To contact the editor responsible for this story: James M. Gomez at email@example.com