Bloomberg News

Romania Seen Leaving Rates Unchanged as Inflation Exceeds Target

May 02, 2013

Romania’s central bank will probably refrain from cutting its main interest rate for a ninth meeting as it waits for the European Union’s highest inflation rate to get closer to its target.

The Banca Nationala a Romaniei will keep the benchmark rate unchanged today at an EU-high 5.25 percent, according to all 19 economists in a Bloomberg survey. The decision is due after 11 a.m. in Bucharest. Governor Mugur Isarescu will brief reporters later in the day.

Romania halted a rate-cutting cycle a year ago as waning agricultural output boosted food prices and a pledge to the International Monetary Fund and the EU to liberalize energy tariffs increased consumers’ utility bills. Other central banks in the region are lowering borrowing costs in an attempt to spur economic growth as the euro area, their main trading partner, struggles to contain the impact of a debt crisis.

“Under our base scenario, the key rate will be left unchanged for the rest of the year, before room for monetary easing opens up in early 2014,” Royal Bank of Scotland Group Plc strategists Abbas Ameli-Renani and Demetrios Efstathiou wrote in a note before the decision. “We would not dismiss the chances of a rate cut in the fourth quarter, particularly if inflation falls faster than expected.”

Romania’s inflation slowed more than estimated in March to 5.25 percent from 5.65 percent in February. 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.

Leu Price

The leu, the best-performing currency against the euro this year among eastern European peers, traded at 4.3230 per euro at 9:20 a.m. in Bucharest, down 0.2 percent from yesterday’s close. It gained 3 percent so far this year.

Neighboring Hungary cut its main rate to a record-low 4.75 percent on April 23 to help its economy emerge from a recession as the inflation rate stood at 2.2 percent in March, the lowest in almost 39 years. Poland’s central bank also reduced its benchmark seven-day reference rate to 3.25 percent on March 6. The Czech Republic has kept its rate at 0.05 percent since last November and is expected to remain on hold at a meeting today, according to a Bloomberg survey of 18 economists.

Romania avoided a recession last quarter as gross domestic product rose a seasonally adjusted 0.4 percent from the previous three months, more than a previous estimate of 0.1 percent. The economy is set to grow 1.6 percent this year, according to the European Commission.

“We expect Romania’s economy to be amongst the outperformers of the region, posting a healthy, albeit modest growth rate of 1.8 percent for full-year 2013,” Ameli-Renani and Efstathiou said.

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


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