Romania Keeps Rates on Hold as Global Policy Turn Rules Out Hike

(Bloomberg) --

Romania left interest rates on hold as the global shift toward looser monetary policy deters it from hikes to tackle the European Union’s fastest inflation.

With benchmark borrowing costs already some way above the nearby euro area, central bank Governor Mugur Isarescu is wary that lifting them further will attract volatile capital.

The key rate was left at 2.5% for a 10th straight meeting on Thursday, as all economists surveyed by Bloomberg predicted. Other eastern European countries are also holding steady, with Poland maintaining record-low rates the previous day.

The Federal Reserve and the European Central Bank have led the way with looser policy and stimulus to counter slower growth in the world economy. But expansion in Europe’s east -- while dipping -- is holding up better, meaning inflation pressure remains.

“If you look at the easing done by the Fed, Japan’s central bank and our neighbors, we’ve indirectly tightened our policy -- it’s a fact,” Isarescu told reporters Thursday in Bucharest.

Consumer-price growth in Romania has exceeded the upper end of the official 1.5%-3.5% target band since February. Rather than increasing its benchmark, the central bank has sought to rein inflation in by regulating money-market liquidity and is counting on a good harvest to help to ease food costs.

While growth remains more than 4%, the wider health of the economy is in question. After a raft of tax cuts and other giveaways, the government is in danger of blowing through EU budget limits. The current-account deficit is also widening, giving the central bank another reason to resist moves that would strengthen the leu.

“Even though it’s an election year, we need to be ambitious but with a certain moderation, to carefully assess what it’s possible to do,” Isarescu said. “We need containment to avoid a further worsening of the current account.”

--With assistance from Harumi Ichikura.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net;Irina Vilcu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Andrew Langley

©2019 Bloomberg L.P.