Tuesday, July 1, 2014

Romania Keeps Main Rate on Hold as Reserve Ratio Cut

Bloomberg News
By Andra Timu and Edith Balazs
July 01, 2014

Romania’s central bank left its benchmark interest rate at a record low for a third straight meeting as policy makers assess how long the slowest inflation since communism collapsed in 1989 can be sustained.

The key rate was kept at 3.5 percent, according to an e-mailed statement today. Ten of 11 economists in a Bloomberg survey predicted the move, while one forecast a cut to 3.25 percent. The central bank cut reserve requirements to 16 percent from 18 percent for foreign currency liabilities and maintained those for leu deposits at 12 percent. Governor Mugur Isarescu will hold a briefing at 3:30 p.m. in Bucharest.

With inflation at a quarter-century low and economic growth the fastest in the European Union in the first quarter, policy makers halted an easing cycle in March after 175 basis points of rate cuts since July. Tax increases may fan inflation to 3.3 percent by year-end, according to the central bank, bringing price growth close to the upper bound of its target corridor.

“The central bank’s next moves will be determined by the inflation path, with the probability of rate cuts increasing,” Dan Bucsa, an economist at UniCredit Bank AG in London said in a note before the decision. “A stable leu and well-behaved energy prices supported by households contribute to the benign inflation scenario.”

The leu traded little changed at 4.3845 per euro at 12:25 p.m. in Bucharest, according to data compiled by Bloomberg. It’s 1.5 percent stronger this year, best-performing currency in central and eastern Europe.
Inflation Target

The central bank is seeking to keep consumer-price growth between 1.5 percent and 3.5 percent this year. It forecasts inflation at 1.4 percent at the end of this quarter from 0.9 percent in May. June data will be released by the country’s National Statistics Institute on July 10.

The economy grew 3.8 percent from a year earlier in the first quarter, boosted by industry and exports.

“The key rate could be cut later this year if inflationary pressures remain subdued,” Radu Craciun, chief economist at Erste Group Bank AG’s Romanian unit, said in a note before the announcement.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky

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