Romania Cuts Benchmark Rate as Political Turmoil Ebbs
Romania’s central bank unexpectedly cut its main interest rate to the lowest since January 2008 after the appointment of a government ended months-old political turmoil and signs that lenders may resume payments of a bailout loan.
The Banca Nationala a Romaniei trimmed the monetary policy rate to 7.5 percent from 8 percent at its first meeting since last month’s presidential elections, the Bucharest-based bank said in an e-mail today. The decision was expected by only two of 11 economists in a Bloomberg survey. Seven predicted no change and two predicted a smaller cut.
“This is a small surprise in timing, but not in direction,” Raffaella Tenconi, the chief economist at Wood & Co. in Prague, said in an interview today. “With the new government already going forward to meet the IMF requirements, a loosening doesn’t change our view of a stable leu in the near term.”
Traian Basescu was re-elected president last month and re- appointed Prime Minister Emil Boc, ending a political stalemate that had left the country without a government since October. The International Monetary Fund, which is leading a $30 billion bailout loan to Romania, has said it may resume loan payments.
Recovering Economies
Economies throughout east Europe are recovering from recession or contractions are slowing as demand picks up from their main trading partners in western Europe. Romania aims for economic growth of as much as 1.5 percent this year after an estimated contraction of 7.5 percent in 2009.
“It is worth noting the continued slowdown in real terms of the annual dynamics of credit to the private sector, especially of the leu-denominated component, amid weak demand for loans against the background of the recession,” the bank said in a statement after today’s decision business cards.
The Romanian leu held its gains against the euro after the announcement and traded 0.2 percent stronger at 4.2071 per euro as of 12:50 p.m. in Bucharest, while the Bucharest Stock Exchange’s main benchmark BET index rose 2.5 percent to 4867.35.
The IMF and the European Union froze the bailout payments to Romania last October after Boc’s previous administration collapsed and the ruling coalition of parties disintegrated in feuding. The lenders said they would visit Romania again in January to discuss the new government’s economic program and 2010 budget plan.
The IMF has said it would only consider unfreezing the payments after Romania installed a new government and passed a 2010 budget plan. The new government was approved in Parliament on Dec. 23 and Parliament is scheduled to vote on the budget plan by Jan. 15.
Romania’s inflation rate rose in November for the first time in 10 months, the National Statistics Institute said on Dec. 11. The rate rose to 4.7 percent from 4.3 percent in October, mainly because of an increase in taxes on tobacco.
The central bank said that increases in tobacco prices last year contributed 1.8 percentage points to the annual inflation rate. Tobacco accounts for 4.6 percent of the basket of products the central bank uses in its consumer price index.