Romania Holds Main Rate for 7th Meeting on Inflation

Romania kept its benchmark interest rate at a record low for a seventh meeting amid a spike in inflation as the economy stagnates.

The Banca Nationala a Romaniei left its policy rate at 5.25 percent today, the bank said in an e-mail. The decision matched all 19 estimates from economists surveyed by Bloomberg. It also left its minimum reserve requirements on foreign-exchange deposits at 20 percent and the ratio for leu deposits at 15 percent. Governor Mugur Isarescu will hold a briefing at 3 p.m. in Bucharest to explain the decision.

Romanian monetary-policy makers halted a rate-cutting cycle in May last year, bucking an easing trend in the region needed to spur economic growth as a government plan to deregulate energy prices and drought-driven food prices quickened inflation. The economy probably stagnated in 2012 and expansion will be slower than forecast this year, the International Monetary Fund said Jan. 31.

“The National Bank continues to err on the safe side,” Dumitru Dulgheru, an economist at Banca Comerciala Romana SA in Bucharest, said in an e-mailed note after the announcement. “Inflation remains stubbornly elevated, while the economy is in neutral and the short-term prospects so far remain subdued.”

Inflation quickened more than forecast in December to 4.95 percent, exceeding the central bank’s 2012 target, on rising food and electricity prices. The bank, which had targeted inflation of between 2 percent to 4 percent at the end of 2012, also approved its quarterly inflation report today, which will be presented at a news conference on Feb. 7.

Leu Gains

The leu was the world’s best-performing currency in January, rising 1.5 percent against the euro. It weakened 0.1 percent to 4.3765 at 12:36 p.m. in Bucharest.

Many central banks in the region are cutting borrowing costs to foster economic growth. Hungary lowered its main interest rate for a sixth month on Jan. 29 to 5.5 percent, while Poland’s central bank eased its benchmark seven-day reference rate on Jan. 9 to 4 percent.

Romania lowered rates 1 percentage point before pausing on May 2 last year after a government collapse amid slowing economic growth. The wait-and-see stance it adopted was “appropriate,” according to IMF Mission Chief Erik de Vrijer. Gross domestic product will expand 1.5 percent this year compared with zero growth last year, he said Jan. 31.

While the central bank has left rates on hold for the past nine months, it has resorted to weekly liquidity operations to guide the leu under its managed-floating regime. The bank has set up a liquidity limit to commercial banks since October, which it has loosened over the past month, according to data published on its website.

“Given the elevated inflation level, the room for maneuvering is still limited,” said Daniel Lenz, chief strategist for emerging markets at DZ Bank AG in Frankfurt. “Once inflationary pressures start abating, the National Bank of Romania may indeed go for a cut in the early third quarter.”

Before it's here, it's on the Bloomberg Terminal.