Romania Holds Key Rate as Economy Surges, Greece Roils Markets

Romania refrained from cutting borrowing costs beyond the current record low as the economy grows at the European Union’s fastest pace and Greek tensions roil markets.

The central bank kept its benchmark interest rate at 1.75 percent, according to an e-mailed statement Wednesday, matching the predictions of 19 of 20 economists in a Bloomberg survey. One saw a cut to 1.5 percent. Governor Mugur Isarescu will hold a briefing at 3 p.m. in Bucharest.

The decision halts an easing cycle that lopped 1.5 percentage points off borrowing costs in 10 months, including a surprise reduction in May. The bank is balancing a surging economy with what it sees as a temporary summer dip into deflation caused by tax cuts and uncertainty over Greece, whose lenders control more than a 10th of Romanian banking assets.

The rate was left unchanged “in the context of elevated risk aversion on external markets, rapid expansion in economic activity and the deteriorating position of public finances,” Nicolae Covrig, a Bucharest-based economist at Raiffeisen Bank Romania SA, said in a note before the decision.

As Greek fallout hurt asset prices in surrounding nations, the leu weakened 0.1 percent this week, paring its 2015 advance to 0.3 percent, data compiled by Bloomberg show. It was 0.2 percent stronger after the rate decision.

Romanian gross domestic product jumped 4.3 percent from a year earlier in the first quarter, the most since 2013. While the inflation rate rose to 1.2 percent in May, before a drop in the value-added tax for food the following month, Isarescu sees consumer prices soon entering a temporary period of declines.

The government is loosening fiscal policy before elections next year as Prime Minister Victor Ponta battles graft allegations. The tax cuts have prompted criticism from the International Monetary Fund and the European Union, which broke off talks over a rainy-day loan last week.

The central bank also maintained reserve requirements for leu deposits at 8 percent and kept those for foreign-currency liabilities at 14 percent.

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