Monday, August 4, 2014

Romania Cuts Main Rate to Record on Subdued CPI Outlook

Bloomberg News
By Andra Timu
August 04, 2014

Romania cut its benchmark interest rate to a record after a five-month pause as a bumper harvest limits the risk of inflation quickening.

Policy makers lowered the rate to 3.25 percent from 3.5 percent, according to an e-mailed statement today. Five of nine economists in a Bloomberg survey predicted the move, while four saw the rate unchanged. The central bank maintained requirements for foreign-currency liabilities at 16 percent and those for leu deposits at 12 percent. Governor Mugur Isarescu will hold a briefing at 3 p.m. in Bucharest.

“Surprisingly low inflation” is behind the rate reduction, according to Vlad Muscalu, a Bucharest-based economist at ING Bank Romania. The cut may be followed by another of the same size next month, he said in an e-mailed note before the decision.

With the inflation rate 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. The bank has reassessed its inflation outlook and will present a new forecast on Aug. 6.

The leu weakened 0.1 percent to 4.4343 per euro at 12:53 p.m. in Bucharest, according to data compiled by Bloomberg. It’s strengthened 0.9 percent this year.

The central bank is seeking to keep consumer-price growth between 1.5 percent and 3.5 percent in 2014 and forecasts year-end inflation at 3.3 percent.

The rate, which fell to 0.7 percent in June, may remain below 2 percent in December because “inflationary expectations have never been lower,” Lucian Croitoru, a monetary-policy adviser to Isarescu, said last week. The National Statistics Institute will release July data on Aug. 11.

To contact the reporter on this story: Andra Timu in Bucharest at

To contact the editors responsible for this story: Balazs Penz at Andrew Langley, Agnes Lovasz

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