By Katya Andrusz and Irina Savu
Oct. 21 (Bloomberg) -- Romania’s central bank may adjust monetary conditions “gradually and prudently” on slowing inflation, Deputy Governor Cristian Popa said.
Policy makers have room “to adjust broad monetary conditions,” including the monetary policy rate, reserve- requirement ratios and variations in the exchange rate, as inflation slows to about 3 percent next year, within the bank’s target band of 2 percent to 4 percent, Popa said in an interview in Warsaw today. It’s “likely that we’ll want to adjust monetary conditions gradually and prudently.”
Eastern European central banks have kept rates on hold on expectations inflation will slow and economies will weaken because of slowing economic growth in western Europe, the region’s main importer of goods. The Banca Nationala a Romaniei kept the European Union’s main rate at 6.25 percent for an 11th meeting on Sept. 29, refraining from a cut that would spur capital outflows and weaken the leu.
“With inflation broadly in line with our forecast and looking at the balance of risks, which is still skewed upwards but appears more moderate than in previous forecasting rounds, there is some space for gradually adjusting broad real monetary conditions,” Popa said. The central bank’s next rate-setting meeting is scheduled for Nov. 2.
Romania’s inflation rate fell more than expected in September to the lowest level in two decades, giving policy makers scope to cut the EU’s highest borrowing costs. Annual consumer-price growth slowed to 3.45 percent from 4.25 percent in August, the National Statistics Institute said on Oct. 11.
“Inflation will continue to decline from its present level into the first half of 2012, but it will thereafter pick up to some extent because the base effect will reverse,” Popa said.
The central bank may intervene to stem excess exchange-rate volatility, which “would not be desirable,” because a stronger currency would harm exporters, while a weaker leu won’t help offset weaker demand for the country’s goods, he said.
“The exchange rate has undergone some depreciation, but to a far smaller extent than other regional currencies,” Popa said. “We retain the capacity to intervene if it’s deemed necessary and appropriate, in line with our managed float regime, and we have tended to react in the exchange-rate market when there has been excess volatility.”
--Editors: Simone Meier, Jeffrey Donovan
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