Romania to Leave EU’s Highest Interest Rate Unchanged on Prices

Romania will probably leave borrowing costs at a record low for an eighth meeting as Cyprus’s bailout weighs on emerging-market currencies and inflation remains above the central bank’s target.

The Banca Nationala a Romaniei will keep its main interest rate unchanged today at 5.25 percent, the highest in the European Union, according to all 20 economists in a Bloomberg survey. The decision is due after 11 a.m. in Bucharest, with Governor Mugur Isarescu to brief reporters later in the day.

A rescue plan that sought to impose losses on insured Cypriot deposits has rekindled Europe’s debt crisis, sparking fears of contagion across the continent. Romania, which halted a rate-cutting cycle in May, is bucking a regional trend toward lower interest rates with inflation exceeding the upper limit of monetary-policy makers’ tolerance band.

“Elevated inflation and renewed uncertainty in the euro zone will likely see the central bank keeping rates on hold in the coming months,” Mai Doan, a London-based economist at Bank of America Merrill Lynch, said in a note. “In the meantime, the central bank may be more cautious with its liquidity management amid leu weakness.”

The leu, the world’s best-performing currency against the euro in January, pared this year’s advance to 0.8 percent after the Cyprus uncertainty triggered a 1.3 percent loss this month. It traded at 4.4205 yesterday, down 0.2 percent from March 26.

Recession Dodged

Romania avoided a recession last quarter as gains in consumption and communication services offset a slump in agriculture. Gross domestic product rose a seasonally adjusted 0.1 percent from the previous three months, less than the 0.2 percent announced in a Feb. 14 preliminary report, after a 0.3 percent decline in the third quarter.

The inflation rate declined to 5.7 percent in February, after reaching 6 percent in January, the highest in 19 months. Price growth will return to the central bank’s target range of 1.5 percent to 3.5 percent by year-end, policy makers predict.

“We are not in a situation to cut interest rates,” Isarescu said yesterday during a speech in Bucharest. “Even though we averted a recession, we still have inflationary expectations.”

Eastern European central banks are trimming borrowing costs to help revive flagging economic growth. Hungary cut its main rate to 5 percent on March 26, while Poland’s central bank also reduced its benchmark seven-day reference rate to 3.25 percent on March 6.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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