Romania Cuts Main Rate for Third Meeting to Record-Low 4.25%

Romania cut its benchmark interest rate by a quarter point to a record low in a third month of easing with inflation set to slow to within policy makers’ goal.

The Banca Nationala a Romaniei trimmed the rate to 4.25 percent from 4.5 percent, according to an e-mailed statement today. Fourteen of 18 economists in a Bloomberg survey predicted the cut, while four saw a half-point reduction. The bank kept its minimum reserve requirements at 20 percent for foreign-exchange deposits and at 15 percent for leu deposits. Governor Mugur Isarescu will hold a briefing at 3 p.m in Bucharest.

Policy makers, who kept borrowing costs unchanged for more than a year after a surge in inflation, resumed rate reductions in July, with consumer-price growth poised to slow within their 2013 target of 1.5 percent to 3.5 percent this month. The benchmark rate will be cut further in the coming months, according to Abbas Ameli-Renani, a strategist at Royal Bank of Scotland Group Plc in London.

“I expect another 25 basis-point cut at the November meeting before the central bank brings an end to the easing cycle,” Ameli-Renani said by e-mail after the decision. “With inflation expected to fall within the central bank’s target and stay there until at least end-2014, the central bank will feel comfortable implementing at least another 25 basis-point cut.”

Weaker Leu

The leu has weakened 0.2 percent this year against the euro, the second-best performance among 24 emerging-market currencies tracked by Bloomberg. It traded little changed at 4.4595 per euro by 1:54 p.m. in Bucharest.

Eastern European policy makers are diverging as their economies show varying degrees of recovery. Hungary’s central bank cut its benchmark interest rate to a record-low 3.6 percent Sept. 24, while Poland kept its main rate at a record low of 2.5 percent Sept. 4. The Czech Republic, where borrowing costs are effectively zero, refrained from announcing further policy easing through koruna sales at a meeting last week as its economy recovers from a record-long recession.

As the end of the euro region’s two-year slump buoys export demand, Romania’s economy will expand 1.9 percent this year, the government predicts. The central bank cut borrowing costs by a total of 75 basis points in July and August after halting rate reductions last March as a drought stoked inflation.

Consumer-price growth, which slowed to 3.7 percent from a year earlier in August, will probably decelerate to 3 percent this month after the government trimmed the value-added tax for bread to 9 percent from 24 percent, according to the bank’s projections. The inflation rate will drop to 3.1 percent by year-end, remaining at that level in 2014, it predicts.

“We see the central bank delivering a final cut in the key rate in early November to 4 percent and then pausing,” Banca Comerciala Romana SA economist Dumitru Dulgheru said in a note after the decision.

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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