Tuesday, November 25, 2014

Bloomberg News Romania Has ‘Leeway’ for Interest-Rate Cut, Central Banker Says

By Agnes Lovasz and Andra Timu 
November 24, 2014

Romania Central bank may cut its benchmark interest rate to a record as inflation slows, while “dramatic” moves aren’t planned, Board Member Daniel Daianu said.

The central bank still has room to ease until inflation starts to accelerate in the second half of next year, Daianu said in an interview today. The bank, which cut its main rate by a quarter point to 2.75 percent on Nov. 4, has an inflation target of 1.5 percent to 3.5 percent for this year and next.

“There’s leeway to continue lowering the policy rate, but we’re not going to do it in a dramatic way,” Daianu said in Vienna, adding that this is his personal view. “It’s common sense to believe that there’s room. Not moving by 50 basis points was prompted by the belief that we should allow more room down the road. So I’m not a lone voice.”

With economic growth exceeding estimates and the central bank forecasting inflation to end the year at 1.5 percent on lower oil prices and cheaper food, policy makers will hold a rate-setting meeting on Jan. 7. Governor Mugur Isarescu said the bank’s policy stance was influenced by the Polish central bank’s decision to keep rates on hold on Nov. 5.

“The good news is that the low inflation environment allows us to continue our monetary easing plan. Even if we don’t cut rates anymore, we still have minimum reserve requirements,” Isarescu said on Nov. 6. “We still have room for maneuvering the policy, and we are not stuck like other central banks.”
Surprising Growth

The bank trimmed reserve requirements for foreign currency deposits of commercial banks to 14 percent from 16 percent, leaving them unchanged at 10 percent for leu accounts on Nov. 4.

The leu gained 0.1 percent to 4.4325 per euro at 4:41 p.m. in Bucharest, strengthening for a third day, according to data compiled by Bloomberg. Yields on 2024 euro-denominated bonds declined one basis point, or 0.01 percentage point, to 2.62 percent, the lowest since the bonds started trading on Oct. 23.

Gross domestic product advanced 3.2 percent last quarter of this year compared with 1.4 percent in the previous three months, while the average estimate of nine economists in a Bloomberg survey was for 1 percent growth from a year earlier.

“We were also surprised, but agriculture played a significantly larger role than some of us believed,” said Daianu, who estimates next year’s growth at 2.5 percent.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

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

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