Romania Will Probably Keep Rates Steady at First Meeting in 2013

The Romanian central bank will probably keep its benchmark interest rate unchanged today at its first meeting of the year to weigh inflationary pressures against an economic slowdown.

The Banca Nationala a Romaniei will hold the monetary-policy rate at a record-low 5.25 percent, according to all 13 economists surveyed by Bloomberg. A decision will be announced after 11 a.m. in Bucharest.

The bank halted its easing cycle in May after two government changes and a power struggle between President Traian Basescu and Prime Minister Victor Ponta plunged the leu to a record low and a prolonged drought pushed food prices up. Ponta’s ruling coalition won a two-thirds majority in Parliament in Dec. 9 elections and he was reinstated as premier at the end of last month.

“The upside pressures to inflation are noteworthy, while domestic demand remains weak and gives guidance for a prudent monetary-policy stance,” Bucharest-based analysts at NBG Securities Romania SA, including Irina Cretu, wrote in a note.

Monetary authorities in much of central Europe have been easing policy to alleviate the impact of the sovereign-debt crisis in the euro area, the region’s main trading partner. Hungary cut its main rate to 5.75 percent Dec. 18, the fifth reduction in as many months, while Poland’s central bank Governor Marek Belka on Dec. 11 called for more interest-rate cuts from 4.25 percent.

Slowing Inflation

While Romanian inflation, which slowed to 4.56 percent in November, will probably stay above the central bank’s target band of between 2 percent and 4 percent as policy makers estimated the rate at 5.1 percent last month. The National Statistics Institute will release December inflation data on Jan. 11.

The central bank should scrap a “wait-and-see” approach to monetary policy and start focusing, together with the government, on spurring the economy, board member Nicolae Danila said, according to an interview published in Ziarul Financiar on Jan. 4, adding that he was speaking on the issue as an economics professor.

The leu, which gained 1.5 percent in December, dropped 0.2 percent to 4.4249 per euro late on Jan. 4. Yields on Romania’s 2016 euro-denominated bonds rose 14 basis points, or 0.14 percentage point, to 3.07 percent, snapping a six-day decline after dropping to a record low on Jan. 3 of 2.93 percent, according to data compiled by Bloomberg.

Spurring Growth

Policy makers could also accept an inflation rate higher than the bank’s target to help spur growth, Danila said, according to the Bucharest-based newspaper.

Gross domestic product contracted a seasonally adjusted 0.5 percent in the third quarter from the previous three months, compared with a 0.1 percent increase in the April-June period.

Romanian central bankers lowered rates 1 percentage point from September 2011 to March last year before pausing the cycle in May. The country, which has a two-year, 5 billion-euro ($6.5 billion) precautionary loan agreement with the International Monetary Fund and the European Union, is considering a new deal once the current one expires at the end of March.

-- With assistance from Barbara Sladkowska in Warsaw. Editors: Alan Crosby, Andrew Langley

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