Romania Prolongs Key-Rate Pause Despite Inflation Rebound
Romania Prolongs Interest-Rate Pause Despite Inflation Rebound
(Bloomberg) --
Romania extended a year-and-a-half pause in interest rates as it weighs above-target inflation against a weakening economy.
The central bank left benchmark borrowing costs at 2.5% for a 13th straight meeting on Wednesday, as predicted by all analysts surveyed by Bloomberg.
While the U.S. and Europe are deploying stimulus to counter slower economic growth, most eastern European countries are keeping interest rates on hold as expansion remains strong. Poland, the region’s Union’s biggest economy, prolonged an unprecedented stint of record-low borrowing costs.
In Romania, the central bank is trying to curb advances in consumer prices by tightening the amount of cash available to commercial lenders. Governor Mugur Isarescu is worried that higher benchmark rates could attract speculative foreign capital.
He’s also raised concern about shortfalls in the budget and current account -- especially with a minority government in power and elections due in the fall. Future monetary-policy decisions will depend on fiscal adjustments and moves by the European Central Bank, Isarescu said Wednesday.
“Given the twin-deficit constraints, the central bank is likely to keep its key rate unchanged until after the general election due in late 2020, while retaining the flexibility of altering monetary conditions via liquidity management,” Ciprian Dascalu, an economist at ING Bank NV in Bucharest said by email before the rate announcement.
While elevated, inflation will probably ease in the medium-term and return inside the target band, Isarescu told reporters.
“We’re concerned about the budget situation,” he said. “That’s the core issue that we all need to tackle in order to reach a sustainable economy.”
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
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