Romania leaves rates unchanged

Bloomberg

Romania unexpectedly left borrowing costs unchanged, looking past the European Union’s fastest inflation as the economy cools.
The National Bank of Romania kept its benchmark interest rate at 2.5 percent on Monday. Three of 18 analysts in a Bloomberg survey predicted the decision, while 15 saw a quarter-point increase. Governor Mugur Isarescu was expected to hold a briefing in Bucharest.
While Romanian inflation has shot beyond the central bank’s target, there were reasons not to follow the nearby Czech Republic in lifting interest rates. An economic surge has eased off, the leu has dodged the weakness afflicting currencies in other developing nations and tighter money-market interest rates are already quelling price pressures. The bank sees inflation slowing through year-end. It may already have peaked.
“We expect the central bank to leave room open for more tightening, if needed, and to revise downward its core inflation outlook,” said ING Bank NV’s Bucharest-based economist, Ciprian Dascalu, who correctly predicted the decision.
The surprise decision on rates sent the leu 0.2 percent weaker against the euro, while money-market rates declined from a four-year high. Also on Monday, the central bank held its first repo auction for commercial lenders since December, helping to ease the liquidity shortage that’s driven market rates higher.
After peaking at 5.4 percent in June, consumer-price growth will probably slow to less than 4 percent by year-end, according to the central bank’s most-recent forecasts. But price expectations are elevated and the labor market remains tight. The bank will release updated projections on August 8.
While Deputy Governor Liviu Voinea said last month that Romania isn’t done yet with rate hikes, the bank’s board has been surprised by a loss of momentum in the economy, whose expansion has halved since reaching an annual 8.8 percent in the third quarter of 2017.