Wednesday, January 8, 2014

Romania Cuts Benchmark Rate to Record Low as Inflation Slows

By Andra Timu and Irina Savu

Jan. 8 (Bloomberg) --Romania cut its benchmark interest rate to a record for a fifth meeting with inflation the slowest in almost two years and policy makers also moved to stimulate growth by cutting banks’ reserve requirement.

The Bucharest-based Banca Nationala a Romaniei lowered the rate to 3.75 percent from 4 percent, according to an e-mailed statement today, matching the estimate of 13 of 14 economists in a Bloomberg survey. One predicted unchanged borrowing costs. The bank also cut minimum reserve requirements for leu liabilities to 12 percent from 15 percent and for foreign-currency ones to 18 percent from 20 percent. Central bank Governor Mugur Isarescu will hold a briefing at 4 p.m.

Policy makers, who have lowered the benchmark rate by a 150 basis points since July 2013, seek to spur leu-denominated lending and accelerate growth. The central bank in November said there is “some room” for further cuts after the inflation rate fell to 1.8 percent, the lowest since May 2012.

“The inflation picture in Romania as well as the risk perception toward the country would clearly allow for additional rate cuts,” economists at Raiffeisen Bank (RBI) Romania SA, including Ionut Dumitru, wrote in a note before the decision.

The leu, last year’s second-best performer against the euro among 24 emerging-market currencies tracked by Bloomberg, traded 0.1 percent stronger at 4.497 per euro at 2:01 p.m. in Bucharest.
Lending, Growth

Lending in Romania fell to 220 billion lei ($67 billion) in November, down 4.1 percent from a year earlier and 0.6 percent from October, according to central bank data. The economy grew 4.1 percent in the third quarter, the fastest in two years, helped by export growth and a bumper harvest.

The central bank is targeting 2014 price growth of 1.5 percent to 3.5 percent and sees year-end inflation at 3 percent after a drop to about 1 percent in the first quarter. The statistics institute will publish December inflation data Jan. 13, according to a calendar on its website.

“We think the central bank will continue to cut at its next meeting and then perhaps pause,” Daniel Hewitt, a London-based senior economist for emerging markets at Barclays Plc (BARC), said in a note before the decision. “More cuts are possible depending on global financial conditions.”

To contact the reporters on this story: Andra Timu in Bucharest at; Irina Savu in Bucharest at

To contact the editors responsible for this story: Balazs Penz at; James M. Gomez at

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