Romania left its benchmark interest rate at a record low, ending an easing cycle after almost nine months with inflation poised to accelerate from a post-communist low in the second half of the year.
The Banca Nationala a Romaniei held the rate at 3.5 percent, according to an e-mailed statement today, matching the estimate of all 16 economists in a Bloomberg survey. Reserve requirements were kept at 12 percent for leu liabilities and 18 percent for those denominated in foreign currency.
Policy makers are pivoting to a focus on inflation after reductions at every meeting since July shaved 1.75 percentage points off the main rate in a bid to reverse a lending contraction and boost economic growth. With the regulator predicting that tax increases will fan inflation after June, the benchmark is now “well positioned,” central bank Governor Mugur Isarescu said after a quarter-point cut on Feb. 4.
“We maintain our objective to lower minimum reserve requirements and bring them closer to EU levels but we couldn’t do that now because there is surplus liquidity in the money market and we are also seeing intensified deleveraging,” Isarescu told reporters in Bucharest after the rate announcement. “Commercial banks still have room to lower loan rates and I think credit growth will return to positive territory in the coming months.”
The leu headed for the highest level since Feb. 5 on a closing basis, trading 0.1 percent stronger at 4.4624 per euro at 4:12 p.m. in Bucharest, according to data compiled by Bloomberg.
The central bank is seeking to keep consumer-price growth between 1.5 percent to 3.5 percent this year. It forecasts a year-end inflation rate of 3.5 percent after a drop to about 1 percent in the first quarter following February’s 1.1 percent.
“The remaining easing will probably be limited to reserve-requirements cuts,” Vlad Muscalu, an economist at ING Groep NV’s local unit, said in a note before the decision.
The economy grew 5.2 percent from a year earlier in the fourth quarter, the fastest since 2008, boosted by industry and agriculture. Lending fell to 218 billion lei ($67 billion) in February, down 2 percent from a year earlier, according to central bank data.
The crisis in Crimea is having limited impact on Romania, according to Isarescu.
“The deterioration in the inflation outlook and concerns about triggering a sell-off in the currency caused the National Bank of Romania to bring its easing cycle to an end,” William Jackson, an emerging-markets economist at Capital Economics Ltd. in London, said by e-mail. “But, barring a sharp fall in the leu, we don’t think policy makers will start to raise interest rates any time soon.”