Bloomberg News

Romania Keeps EU’s Highest Rate Unchanged on Cyprus, Inflation

March 28, 2013

Romania kept its main interest rate at a record low for an eighth meeting as Cyprus’s bailout weighs on emerging-market currencies and inflation exceeds the central bank’s target.

The Banca Nationala a Romaniei left its monetary policy rate at 5.25 percent today, the highest in the European Union, the bank said in an e-mail. The decision matched all 20 estimates by 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. Governor Mugur Isarescu will hold a briefing at 3 p.m. in Bucharest.

A rescue plan that sought to impose losses on insured Cypriot deposits has rekindled Europe’s sovereign-debt crisis, sparking fears of contagion across the continent. Romania, which halted a rate-cutting cycle in May, is bucking a regional trend toward lower interest rates with inflation rate at more than double the central bank’s target for this year.

“Looking ahead, we believe that the challenging inflation outlook and potential spillovers from the euro-area crisis limit the central bank’s ability to relax liquidity conditions further without hurting the currency,” Ilker Domac and Gultekin Isiklar, economists at Citigroup Inc., wrote in a note to clients before the decision.

The leu, the world’s best-performing currency against the euro in January, pared this year’s advance to 0.8 percent after the Cyprus uncertainty triggered a 1.3 percent loss this month. It traded at 4.4186 at 12:36 p.m. in Bucharest today, down 0.1 percent from yesterday’s close.

Slowing Inflation

The inflation rate declined to 5.7 percent in February, after reaching 6 percent in January, the highest in 19 months. Price growth will return to the central bank’s target range of 1.5 percent to 3.5 percent by year-end, policy makers predict.

The bank provided funding in line with demands from commercial lenders at its weekly repurchase operations for a fourth week on March 25 after limiting liquidity for five months to help boost the currency. The central bank lent 3.5 billion lei ($1 billion), more than the 247 million lei provided a week earlier.

“We are not in a situation to cut interest rates,” Isarescu said yesterday during a speech in Bucharest. “Even though we averted a recession we still have inflationary expectations.”

Eastern European central banks are trimming borrowing costs to help revive flagging economic growth. Hungary cut its main interest to 5 percent on March 26, while Poland’s central bank reduced its seven-day reference rate on March 6 to 3.25 percent.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus