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Romania May Hold Key Interest Rate for Third Meeting on Turmoil

August 01, 2012

Romania’s central bank will probably keep its benchmark interest rate unchanged for a third meeting as the political turmoil that pushed the leu to a record low outweighs concern about weaker economic growth.

The Banca Nationala a Romaniei will leave its monetary- policy rate unchanged at 5.25 percent today, according to all 12 economists surveyed by Bloomberg. A decision will be announced after 11 a.m. in Bucharest.

A battle between the president and the premier, which resulted in an unsuccessful presidential impeachment vote last week, weakened the leu 3.5 percent against the euro in July, preventing the central bank from moving ahead with rate cuts needed to help drag the economy out of its second recession in three years.

“While the difficult economic conditions could warrant softer monetary policy, the room for maneuvering looks even more limited than” in June, ING Bank Romania economist Vlad Muscalu said. “With many months to go until the general elections, it’s very likely that more episodes of increased tension will follow, as neither of the main parties appears to be in a too comfortable position, and easing monetary policy would amplify the depreciation potential of the leu.”

As the euro region’s sovereign-debt crisis is threatening to throw the economy into recession, central and eastern European central banks are cutting rates or weighing the merits of policy easing on their export-driven economies.

Political Wrangling

Romania’s central bank will probably leave the key rate on hold for the remainder of the year, according to the median estimate of seven economists surveyed by Bloomberg, because of continued political wrangling between suspended President Traian Basescu, who is expected to be reinstated after the referendum result was invalidated by a lack of voter participation, and the ruling coalition of Prime Minister Victor Ponta before general elections in November or December.

Neighboring Hungary has kept its rate unchanged for seven months because of stalled international aid talks and a worsening inflation outlook. It may cut the rate by the end of this year as the economy slides into recession. The Czech Republic cut its main rate in June for the first time in two years to combat recession.

Romania’s economy slipped into recession in the first quarter as government spending cuts hampered consumption and freezing temperatures curbed export growth. Output growth will probably slow to 1.5 percent this year compared with 2.5 percent growth in 2011, according to forecasts by the International Monetary Fund and the European Union.

The political turmoil, coupled with the euro area’s debt crisis, should lead the central bank to leave rates on hold,’’ Banca Comercial Romana SA economists wrote in a note to clients.

“This somewhat goes against the country’s economic fundamentals, which would normally point to further easing of monetary policy, especially when the local economy is expected to grow well below its potential,” according to the note.

To contact the reporter on this story: Irina Savu in Bucharest at

To contact the editor responsible for this story: James M. Gomez at

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