Bloomberg News

Romania to Keep Main Rate Unchanged on Leu Concern, Survey Shows

November 02, 2011

Nov. 2 (Bloomberg) -- Romania’s central bank will probably keep its main interest rate unchanged at its last meeting this year to prevent capital outflows and a depreciation of the currency during Europe’s debt crisis.

Banca Nationala a Romaniei will keep its benchmark interest rate at a record-low 6.25 percent, according to 14 out of 15 economists surveyed by Bloomberg. One forecast a cut of a quarter of a percentage point. A decision is likely to be announced after 11 a.m. in Bucharest.

“While inflation is obviously falling sharply as a result of tax changes” fading out, “the currency position is precarious, especially with Romania likely to be a target” for capital outflows from euro-area banks, said Peter Attard- Montalto, a London-based economist at Nomura International Plc. “Balancing macro and financial stability through unchanged rates makes the most sense.”

Eastern European policy makers have kept rates on hold, even as an economic recovery falters, to protect their currencies as investors exit emerging-market assets amid Europe’s sovereign-debt crisis.

Regional Outlook

The Romanian central bank kept the European Union’s highest benchmark rate at 6.25 percent for an 11th meeting on Sept. 29. Hungary left borrowing costs unchanged on Oct. 25 for a ninth month, while Poland stood pat for a second meeting on Oct. 6. The Czech central bank is forecast to leave its rate at a record low when it meets on Nov. 3.

The leu, the ninth-best performer this year among 25 emerging-market currencies tracked by Bloomberg, weakened 0.2 percent to 4.3489 against the euro as of 5:05 p.m. in Bucharest yesterday. Montalto estimates the leu will depreciate further to 4.4 percent by the end of the year and said he sees “upside risk into next year.”

The inflation rate fell more than expected in September to the lowest level in two decades, giving policy makers scope to cut the main rate. Annual consumer-price growth slowed to 3.45 percent from 4.25 percent in August.

Romania may meet the central bank’s inflation target in 2011 for the first time in five years as a good harvest boosted supply and lowered food prices and the effects of the government tax increase fade, Deputy Governor Cristian Popa said on Sept. 29. Inflation will probably slow to about 3 percent next year, within the bank’s 2 percent to 4 percent target band, Popa said.

Central bankers left rates on hold after a July 2010 increase in the value-added tax rate to meet international bailout pledges boosted the inflation rate to the highest in two years. Before that, the bank lowered borrowing costs four times to combat the worst recession in two decades.

--With assistance from Zoya Shilova in Moscow. Editors: Douglas Lytle, Alan Crosby

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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