Wednesday, February 3, 2010

Romania May Cut Benchmark Interest Rate a Second Time This Year

By Adam Brown

Feb. 2 (Bloomberg) -- Romania’s central bank will tomorrow probably cut its benchmark interest rate a second time this year after the International Monetary Fund signaled it’s ready to unfreeze a $30 billion loan to the country, a survey showed.

The Banca Nationala a Romaniei will cut its monetary policy rate to 7 percent from 7.5 percent tomorrow, according to eight of the eleven economists surveyed by Bloomberg. Two expect a quarter-point cut, while one predicts the bank will lower the benchmark to 6.75 percent. The announcement is expected after 11 a.m. local time tomorrow.

“A cut from the central bank at this stage would be interpreted by investors as increased confidence that things are improving in Romania,” Nicolaie Alexandru-Chidesciuc, chief economist at ING Bank Romania SA, said in a research note today. “At the same time, it would offer the necessary stimulus for re-entering on a growth path.”

Central banks in eastern Europe are still cutting rates to resurrect their economies after their reliance on exports and foreign credit last year plunged the region into the world’s deepest contraction. Hungary last week cut its benchmark a quarter point to 6 percent while Deutsche Bank AG estimates Russia may lower its refinance rate by as much as 1.5 percentage points this quarter.

A team from the IMF last week recommended that the fund resume disbursement to Romania after the Balkan country’s political impasse was resolved, enabling the passage of a budget bill. The mission said a payment of 2.3 billion euros ($3.2 billion) will probably arrive in mid- to late-February and a further 1 billion euros may be paid in March.

Political Turmoil

Half of the February payment will be used to build up foreign exchange reserves at the central bank while the remaining half will finance the budget deficit.

Romania’s central bank last cut its main rate on Jan. 5, by half a percentage point, after the formation of a government two weeks earlier ended months of political turmoil that had left the country without an administration and prompted the IMF to shelve its emergency loan.

Prime Minister Emil Boc put together a Cabinet on Dec. 23 and lawmakers approved the spending and revenue plan on Jan. 14.

To contact the reporter on this story: Adam Brown in Bucharest atabrown23@bloomberg.net

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