By Irina Savu
Oct. 12 (Bloomberg) -- Romania’s annual inflation rate dropped less than analysts estimated in September, limiting the central bank’s scope to cut the European Union’s highest benchmark interest rate.
The inflation rate was 4.9 percent in September, compared with 5 percent in August, the National Statistics Institute said in an e-mail today. The median estimate in a Bloomberg survey of 13 economists was 4.8 percent. On the month, consumer prices rose 0.4 percent.
Inflation has been slowing since February as a recession curbed consumption, allowing the central bank room to cut its benchmark interest rate five times. Romania’s governing coalition collapsed two days after the most recent reduction, leaving a minority government to cope with economic reforms attached to an international bailout.
“Inflation was a bit higher than expected, which is slightly negative for the next monetary policy meeting in November,” Nicolaie Alexandru-Chidesciuc, chief economist at ING Bank Romania in Bucharest, said in an e-mail today. “It is more likely now to see a cut of just 25 basis points, partly because political instability persists in Romania.”
The leu slid to 4.2855 per euro as of 12:10 p.m. in Bucharest, from 4.2810 late on Oct. 9. The Bucharest Stock Exchange’s benchmark BET index rose 0.7 percent to 4,397.89.
Policy makers, who last month cut the key rate to 8 percent from 8.5 percent, will next discuss borrowing costs on Nov. 3. Central Bank Governor Mugur Isarescu on Aug. 6 forecast that the country’s annual inflation rate will slow to 4.3 percent at the end of this year, within the bank’s target band of 2.5 percent to 4.5 percent.
“Chances for the NBR to achieve the inflation target have decreased with the September figure,” Chidesciuc said. “The negative impact from tobacco prices is likely to continue during the fourth quarter and the positive seasonal impact on fruit and vegetables will dissipate so it is possible to see pressure on inflation as of October.”
Food-price growth in September slowed to an annual 1.9 percent from 2.4 percent in August and fell 0.16 percent on the month, the institute said. Prices of non-food goods rose an annual 5.5 percent, boosted by higher tobacco prices. Services prices increased 10.2 percent from 10.8 percent.
The quarterly economic contraction eased to 1.1 percent in the second quarter from 2.9 percent in the first and the International Monetary Fund, which is leading a 20 billion-euro ($29.5 billion) international financing package for Romania, predicts quarterly growth in the fourth quarter.
France and Germany, which Romania relies on for export demand and investment, emerged from their recessions in the second quarter, prompting analysts to predict a recovery across most of eastern Europe this year or next.
Romania will exit a recession late this year, after its economic slump culminated in a contraction of 8.7 percent in the second quarter, according to the government.
Unemployment rose to a five-year high of 6.9 percent in September from 6.6 percent in August and a 17-year low of 3.7 percent in 2008, while lending growth has slowed to about 8.2 percent in August from as high as 64 percent in 2008. Annual wage increases slowed to 5.6 percent from more than 20 percent in the same period.
To contact the reporter on this story: Irina Savu in Bucharestisavu@bloomberg.net.