Romania Still Sees Room for Easing After Rates Cut to Record

Romania’s central bank said there’s still “some room” for interest-rate cuts after reducing its benchmark to a record low for a fourth meeting.

With inflation at 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.

“As far as the interest rate is concerned we still have some room for cuts but not much,” Governor Mugur Isarescu said in a news conference after the decision. “If we’re talking about broad monetary policy, including minimum reserve requirements, I’d say we have wider room for maneuver.”

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.

The leu is this year’s second-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 4.4429 per euro at 5:20 p.m. in Bucharest.

‘Strong Hint’

“Isarescu gave a strong hint that further cuts are likely in the months ahead,” William Jackson, an emerging-markets economist at Capital Economics Ltd. in London, wrote in an e-mailed note. “For now, we have penciled in two 25 basis-point interest-rate cuts next year, whereas we had previously expected rates to be left unchanged.”

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 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.

VAT Effect

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 inflation rate will drop to a record low in the first half of next year, with recently announced tax increases on fuel only having a “limited impact” of 0.2 percentage points on price growth, Isarescu said. Without the taxes, inflation would have probably slowed to less than 1 percent, he said.

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.

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