Bloomberg News

Romania Seen Leaving Rates Unchanged on Price-Growth Concerns

September 26, 2012

Romania’s central bank will probably leave its main interest rate unchanged for a fourth meeting today as it weighs the impact of rising food prices amid slowing economic growth.

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

Policy makers have been holding off on easing rates because of 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.

“We expect the National Bank of Romania to keep the key rate at 5.25 percent,” said Vlad Muscalu, senior economist at ING Bank Romania in Bucharest. “Nevertheless, this is shaping up as a particularly interesting meeting given the sharp deterioration of the near-term inflation outlook.”

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 because of political turmoil before 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.

Economic Recession

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.

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, today, according to the median estimate of economists surveyed by Bloomberg.

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

Supply-Side Shocks

“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 1.2 percent against the euro this month, and traded late yesterday at 4.5193 to Europe’s common currency, according to data compiled 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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