Romania Cuts Main Rate to Record With Inflation at 16-Month Low

Romania cut its benchmark interest rate to a record for a fourth meeting as inflation slowed to its lowest level in more than a year.

The Bucharest-based Banca Nationala a Romaniei lowered the rate to 4 percent from 4.25 percent, according to an e-mailed statement today. Fourteen of 16 economists in a Bloomberg survey predicted the move, while two saw a half-point cut. Central bank Governor Mugur Isarescu will hold a briefing at 3 p.m. local time today.

After leaving interest rates unchanged for more than a year, policy makers began to cut the benchmark in July to take advantage of the lowest inflation rate since May 2012. The central bank wants to trim borrowing costs to speed economic growth that slowed between April and June after reaching its fastest in 1 1/2 years in the previous three months.

“This low-inflation (ROCOPYOY) environment allows the central bank to continue the rate-cutting cycle with the purpose of supporting leu lending,” Rozalia Pal, an economist at Garanti Bank Romania SA, said by e-mail. “Cheaper leu loans could be one of the engines for boosting the economy in 2014.”

The leu is this year’s best performer against the euro among 24 emerging-market currencies tracked by Bloomberg with a 0.1 percent gain. It was 0.1 percent lower at 4.442 per euro at 12:23 a.m. in Bucharest.

Regional Differences

Eastern European policy makers are diverging as their economies show varying degrees of recovery. Hungary’s central bank cut its benchmark rate to a record-low 3.4 percent on Oct. 29, while policy makers in Poland (POREANN) and the Czech Republic will keep rates unchanged this week, two Bloomberg surveys show.

Romania’s central bank today left minimum reserve requirements at 20 percent for foreign-exchange deposits and 15 percent for leu deposits. Lending rose 0.5 percent from the previous month in September to 223 billion lei ($68 billion), declining 3.3 percent from a year earlier.

Inflation slowed to 1.9 percent in September from 3.7 percent in August. Prices declined 0.6 percent from the previous month after the government cut the value-added tax for bread to 9 percent from 24 percent.

The central bank is targeting 2013 price growth of 1.5 percent to 3.5 percent and currently predicts year-end inflation at 3.1 percent. The government last week increased this year’s economic-growth estimate to 2.2 percent from 1.9 percent amid a bumper harvest.

“This cut is likely to mark the low of the easing cycle, with disinflationary pressures proving resilient and activity remaining weak,” Christian Lawrence, a foreign-exchange strategist at Rabobank International in London, said yesterday in a note.

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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