Romania extends rate pause after EU’s fastest inflation dips

Bloomberg

Romania prolonged more than a year of steady interest rates, looking past the European Union’s fastest inflation as the world’s major economies pivot towards looser monetary policy.
Following the first cut in US borrowing costs since the financial crisis, the National Bank of Romania left its benchmark rate unchanged at 2.5% on Monday, as predicted by economists in a Bloomberg survey.
Concerned about attracting speculative capital inflows, the central bank is battling elevated consumer-price growth by pulling excess cash out of the financial system rather than hiking borrowing costs. The strategy is paying off — inflation eased for the first time this year in June. But it remains above-target.
“Rising external and internal imbalances make a strong case for a tighter monetary stance,” GultekinIsiklar, an Istanbul-based economist at Citibank AS, said by email before the decision. “But a more accommodative policy path by other central banks strengthens the Romanian central bank’s position to keep the policy rate unchanged for longer.”
Despite resurgent inflation, eastern European nations have been reluctant to lift borrowing costs, citing expectations for a slowdown in global economic growth. The Czech Republic kept interest rates unchanged last week, as did Poland in July.
At 3.8%, Romanian inflation has pushed beyond the 1.5%-to-3.5% tolerance band, driven by a booming economy. As well as its money-market measures, the central bank is counting on a good harvest helping to ease produce costs.
Governor MugurIsarescu will present an updated inflation forecast later this week.