Monday, July 1, 2013

Bloomberg News: Romania to Cut Main Rate First Time in 16 Months on CPI Outlook

Romania will probably cut its main interest rate, the European Union’s second-highest, for the first time in more than a year as the central bank sees inflation slowing to within its target in the second half.

The Banca Nationala a Romaniei will trim the benchmark rate today to a record-low 5 percent from 5.25 percent, according to 11 of 16 economists in a Bloomberg survey. Five predict the bank will leave the rate unchanged. The decision will be announced after 11 a.m. in Bucharest, with Governor Mugur Isarescu to brief reporters later in the day.

Policy makers, who last cut rates in March 2012, would join central banks across eastern Europe in seeking to bolster economic growth even as signs of a pullback in U.S. monetary stimulus dent asset prices. Isarescu signaled in May that he’d deliver several reductions this year as inflation eases.

“We doubt the recent market tension has convinced the central bank to postpone the easing cycle because we haven’t seen signs of strong foreign-exchange interventions over the past weeks, a departure from the very active style of previous years,” Vlad Muscalu, a Bucharest-based economist at ING Bank Romania, said before the rate announcement. “We judged this as expressing a commitment for a soft-rates environment.”

The leu weakened for a second day June 28, falling as much as 0.2 percent to 4.4670 against the euro, according to data compiled by Bloomberg. The currency has lost 0.3 percent this year as investor concern that the U.S. Federal Reserve will reduce its bond-buying program ended a domestic debt rally.
Inflation Pinch

Romania halted a rate-cutting cycle more than a year ago as a drought stoked food prices and utility bills rose following a pledge to the International Monetary Fund to free energy prices. Its main rate is second only to Croatia within the EU after the Adriatic nation became the trading bloc’s 28th member today.

The country’s May inflation rate was unchanged from a year earlier at 5.3 percent, National Statistics Institute data show. Price growth will return to the central bank’s 1.5 percent-3.5 percent target range by year-end, policy makers predict.

“Inflation in May remains well above the target, but we think it will decline sharply in the third quarter on lower food inflation due to base effects,” Barclays Plc economist Daniel Hewitt said in a note before the decision. “The National Bank has signaled a willingness to begin cutting rates in the third quarter, even before reported inflation numbers have declined.”

Romania would join Poland and Hungary in lowering borrowing costs to boost growth. Poland cut its benchmark to a record 2.75 percent June 5 as the economy grapples with its worst slowdown in four years. Hungary reduced its main rate to a record 4.25 percent on June 25 in an 11th straight quarter-point cut.

Romanian gross domestic product advanced 2.2 percent from a year earlier in the first quarter, accelerating from a 1.1 percent pace in the previous three months. GDP growth this year may exceed the government’s 1.6 percent forecast because of a a better harvest, Isarescu said in May.

To contact the reporter on this story: Irina Savu in Bucharest at

To contact the editor responsible for this story: James M. Gomez at

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