By Irina Savu - Apr 11, 2011
Romania’s inflation rate rose to the highest in 2 1/2 years in March, more than economists had forecast, on rising food and fuel costs, bolstering forecasts that policy makers will probably keep rates steady this year.
The rate advanced to 8 percent, the highest since August 2008, from 7.6 percent in February, the Bucharest-based National Statistics Institute said today in an e-mailed statement. The annual rate exceeded the median estimate of 7.8 percent in a Bloomberg survey of eight economists. Prices increased a monthly 0.6 percent.
Central banks around the world are struggling to fight inflation threats and keep higher food and fuel prices from spreading to wages amid turmoil in the Middle East. Romanian policymakers are trying to lower domestic prices boosted by a government increase in a value-added tax rate last year and global prices, while also shoring up the recession-hit economy.
The rate was “a bit of a negative piece of news but it doesn’t change our expectation of interest rates remaining unchanged this year, and if anything it strengthens our view that there aren’t conditions for a rate cut,” said Raffaella Tenconi, a Bank of America Merrill Lynch economist inLondon.
The Banca Nationala a Romaniei left its key rate unchanged at a record-low 6.25 percent on March 31 for a seventh meeting in a row and cut foreign-exchange reserve requirements by 5 percentage points to 20 percent, leaving commercial banks more money to lend to spur the economy, which contracted for two years in a row. It kept the reserve ratio on leu deposits at 15 percent. The next rate-setting meeting is on May 3.
A reduction in reserve requirements on leu liabilities “is well possible in coming months” as “it’s too late for interest rate cuts,” Tenconi said.
Romania’s leu, the third-best performer in eastern Europe after the Hungarian forint and the Serbian dinar this year, gained 2 percent in March because of an improved economic outlook and central bank signals that it may allow further gains in an attempt to damp inflation. The leu rose 0.3 percent to 4.1048 per euro as of 11:02 p.m. in Bucharest.
“It seems to us that as long as inflation pressures remain elevated, the central bank not only has no room to cut rates, but also has to accept leu gains - unlikely to be as fast as recent ones perhaps - in order to tame inflation,” Pasquale Diana, a London-based economist at Morgan Stanley, said in a note to clients today. “In our view, the central bank’s inflation targets of 3 percent for end-2011 and end-2012 are too ambitious and out of reach.”
Food-price inflation quickened to an annual 9.9 percent in March, compared with 8.8 percent in February, boosted by rising bread, potato and sugar prices, the institute said. Non-food prices advanced 7.4 percent, compared with 7.3 percent in the previous month, driven by higher fuel prices. Price growth for services fell to an annual 5.7 percent, compared with 6 percent in February, helped by a stronger currency.
The Bucharest-based central bank will probably increase its inflation outlook because of surging commodity prices, Governor Mugur Isarescu told the news service Mediafax in an interview on April 7. The bank raised its inflation forecast on Feb. 7 for this year to 3.6 percent from a November expectation of 3.4 percent because of rising global fuel and food prices. The rate will probably drop to 3.2 percent in 2012, according to the February forecast.
Romania’s trade deficit narrowed in February to 391.5 million euros ($566 million) from 651 million euros a year earlier as rising demand from western Europe boosted exports, the statistics institute said in a separate statement today. The deficit was a revised 191 million euros in January.
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