Bloomberg News

Romania May Leave Interest Rate Steady for Fourth Meeting on CPI

September 26, 2012

The Romanian central bank will probably leave its main interest rate unchanged for a fourth meeting to weigh the impact of rising food prices amid slowing economic growth.

The Banca Nationala a Romaniei will leave its monetary- policy rate at 5.25 percent tomorrow, according to all 18 economists surveyed by Bloomberg. A decision will be announced after 11 a.m. in Bucharest.

Romanian policy makers have been holding off on monetary policy changes because of a political turmoil that pushed the leu to a record low and a drought that has hit this year’s harvest, as central banks in the region cut or consider lowering borrowing costs to boost flagging economic growth.

“In the context of rising inflationary risks, it’s likely that the National Bank of Romania will maintain a prudent approach, although the external environment is more supportive than in previous weeks,” Monica Croitoru, an economist at BRD- Groupe Societe Generale SA in Bucharest, said.

The central bank lowered rates 1 percentage point before pausing on May 2 after the government collapsed and the economy entered its second recession in three years. Gross domestic product (ROGDPQOQ:US) will grow 0.9 percent this year compared with 2.5 percent last year, according to the International Monetary Fund.

Regional Trend

Neighboring Hungary’s central bank lowered its two-week deposit rate to 6.5 percent for a second month yesterday and forecast further cuts to aid an ailing economy, while the Czech central bank may cut its main rate to 0.25 percent from 0.5 percent, already a record low tomorrow, according to the median estimate of economists surveyed by Bloomberg.

“We estimate the Romanian central bank will keep the key rate unchanged at least until the second quarter of 2013 to fight off potential second-round inflationary effects from the increases in food, fuel and regulated prices as well as pressures from private capital outflows,” Croitoru said.

Inflation in the eastern European country, which has changed governments twice this year, may accelerate in 2012 more than the central bank’s 3.2 percent forecast due to political turmoil ahead of general elections and a drought that boosted prices for imports and food, Governor Mugur Isarescu said Aug. 6. This year’s rate is likely to stay within the bank’s target of 2 percent to 4 percent, he said.

Drought Effects

The inflation rate reached 3.9 percent in August, the highest in a year, as the drought pushed up food costs.

“For the moment, the National Bank of Romania could take a wait-and-see approach, in order to assess the impact of higher consumer prices on inflation expectations,” Raiffeisen Bank Romania SA analyst Nicolae Covrig said. “This view is motivated by the fact that the acceleration in consumer prices is mainly related to supply-side shocks falling outside the control of the central bank.”

A weakening currency has limited the room policy makers have to ease monetary policy, Erik de Vrijer, the head of an IMF mission to Romania, said in an interview on Aug. 14, adding that a tightening of rates may even be discussed.

The leu has dropped 6.34 percent against the euro this month, the second-worst performance among 25 emerging-market currencies tracked by Bloomberg.

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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