Romania Will Probably Leave Rates Unchanged at Last 2012 Meeting

Romania will probably leave its benchmark interest rate unchanged at the last meeting this year on concerns over slowing economic growth as policy makers wait for a recent spike in inflation to ease.

The Banca Nationala a Romaniei will keep its policy rate at 5.25 percent, the lowest on record, for a fifth meeting today, according to all 21 economists surveyed by Bloomberg. A decision will be announced after 11 a.m. in Bucharest and will be followed by a briefing by Governor Mugur Isarescu.

The Romanian central bank has been in a wait-and-see mode since May, when it stopped cutting rates to spur slowing economic growth, after political turmoil knocked the leu to a record low and drought-driven food prices spurred inflation to its fastest in a year in September.

“Subdued domestic demand and the determination of the government to continue its relationship with the IMF after 2013 speak against an emergency hike,” Banca Comercial Romana SA economist Eugen Sinca wrote in a note to clients. “However, if household inflation expectations deteriorate strongly and second-round inflation effects arise in the economy, we would not rule out a gradual increase in 2013.”

Central banks in the region are cutting rates or considering easing monetary policy to boost their economies. Hungary cut its main interest rate on Oct. 30 for a third month to 6.25 percent and may consider further easing on concern about a recession, while the Czechs dropped borrowing costs to a record-low 0.05 percent yesterday.

Political Turmoil

Romanian policy makers lowered rates 1 percentage point before pausing on May 2 after the government collapsed and economic growth slowed. Gross domestic product will grow 0.9 percent this year compared with 2.5 percent last year, according to the International Monetary Fund. Romania has a two-year 5 billion-euro precautionary agreement with the IMF and the European Union, which expires next year, and is considering extending it, Premier Victor Ponta said June 8.

Romanian inflation accelerated more than forecast to the fastest in more than a year in September as rising food and energy costs threaten to push price growth above the central bank’s target for this year.

The rate rose to 5.3 percent in September from a year earlier, exceeding the central bank’s forecast for the third quarter of 3.5 percent. The bank has a 2012 inflation target of 2 percent to 4 percent.

Romania’s central bank shouldn’t hurry to increase interest rates as September’s surprise pickup in inflation is temporary, Lucian Croitoru, a monetary policy adviser to Isarescu, said in an interview on Oct. 10. Inflation will return within the targeted band by next year, as the recent price-growth spike is “transitory,” Isarescu said in Warsaw on Oct. 18.

“It’s unrealistic to say that this year’s target can still be reached,” Croitoru said at the time. “It would take another price shock in the opposite direction to bring the rate down within the targeted band. While that can’t be ruled out, it’s hard to predict such a move.”

To contact the reporter on this story: Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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