Monday, July 13, 2009

Romania Inflation Rate Fell in June on Slower Demand

By Adam BrownJuly 10 (Bloomberg) -- Romania’s inflation rate slipped in June, raising analysts’ expectations for further interest rate cuts, as slower lending and wage growth sapped consumption.

The annual rate fell to 5.9 percent from 6 percent in May, the Bucharest-basedNational Statistics Institute said in an e- mail today. That was in line with the median estimate of nine analysts in a Bloomberg survey.

On the month, consumer prices rose 0.2 percent after remaining unchanged the previous month.“The disinflation process continues and the contraction in domestic demand is helping the process,” Ionut Dumitru, chief economist at Raiffeisen Bank Romania, said in an e-mail. “Probably inflation will be very low in the next months. The central bank could continue to ease the monetary policy stance.”Inflation in eastern Europe has been slowing since the region fell into a recession.

Demand for consumer goods has fallen, joblessness is up and credit dried up, curbing spending.Consumption in Romania dropped 13.7 percent in the first quarter as theeconomy contracted an annual 6.2 percent, slowing annual inflation from 9 percent a year ago and 6.7 percent at the beginning of this year.At the same time, international oil prices rose in June, boosting local prices, and the leu weakened 0.7 percent against the euro in the month. A weaker leu affects telephone bills, rent and other items priced in euros and paid for in the local currency.

The Banca Nationala a Romaniei cut its main interest rate to 9 percent from 9.5 percent on June 30, citing “the outlook of continued disinflation in the coming months” and a slowdown in private-sector lending. It has lowered the rate from 10.25 percent at the start of the year.Bank ActionsThe central bank also lowered minimum reserve requirements to 15 percent from 18 percent on commercial deposits in lei and to 35 percent from 40 percent on foreign-currency deposits.

The bank next meets on August 4 to discuss any further monetary policy changes.Food prices in June rose an annual 3.5 percent while prices of non-food goods increased 6.7 percent on the year, the institute said. Services prices advanced 8.7 percent.Romania in April joined Hungary, Latvia, Belarus, Ukraine and Serbia in requesting aid from the International Monetary Fund to bolster the economy.

The IMF, the European Union and other lenders agreed to provide Romania with 20 billion euros ($28 billion) in financing.As part of the agreement, Romania is targeting a budget deficit of 4.6 percent of gross domestic product this year from a gap of 4.8 percent last year, helping ease inflation with spending cuts that include a wage freeze for state workers.To contact the reporter on this story: Adam Brown in Bucharest atabrown23@bloomberg.net

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