Romania extends rate pause amid ‘greed tax’ paralysis

Bloomberg

Romania left borrowing costs unchanged as the central bank complains that surprise tax measures to shore up the budget are restricting its ability to function.
The benchmark was kept at 2.5 percent for a sixth straight meeting, matching the predictions of all but one economist surveyed by Bloomberg.
The fiscal package, which triggered the country’s biggest market crash since the global financial crisis, includes a levy on lenders that the government accuses of overcharging on loans.
Central bank Governor Mugur Isarescu says the tax curbs “the efficiency of monetary policy” because of its link to money-market interest rates. For now, three rate hikes last year have brought inflation back into the target band. Isarescu will give more details during a news conference at 3 pm in Bucharest.
“The central bank remains at odds with the government over the ‘greed tax,’” Gintaras Shlizhyus, a Vienna-based economist at Raiffeisen Bank International AG said in a note before the decision. “We wouldn’t exclude a stern warning from central bank for the government.”
Romania’s monetary-policy stance is in line with a more dovish mood among the world’s major central banks amid concerns over global growth. Closer to home, Poland prolonged a record period of all-time-low interest rates.
While Romanian inflation is at its lowest level in a year and the economy is slowing, a plunge in the local currency to a record low is likely to stoke price pressure in the coming months and the tax spat leaves the central bank with little room to maneuver. The bank and the Finance Ministry will resume talks on how to resolve their standoff on February 18.
“Economic data is playing second fiddle to political developments,” said Dan Bucsa, a London-based economist at UniCredit Bank AG. Fallout from the ‘greed tax’ is “likely to reduce the scope for central-bank action in terms of interest rates.”