Monday, August 5, 2013

Romania cuts rate 50 bps, inflation in line with target

   Romania's central bank cut its policy rate by 50 basis point to 4.50 percent, the second cut in a row, saying its latest inflation report shows faster "disinflation in the period ahead, along with a pick-up in economic growth." The rate cut was expected.
   The new inflation report, which was approved by the bank's board, will first be released on Aug. 7.
    The National Bank of Romania (NBR) has now cut its rate by 75 basis points this year, the same as in 2012, said the latest data show that inflation is in line with the central bank's previous forecasts and should fall within the bank's target range once the effects of last summer's supply-side effects fade.
    Romania's headline inflation rate was largely steady at 5.37 percent in June from 5.32 percent in May, above the bank's target of 2.5 percent, plus/minus 1.0 percentage point. The NBR has forecast that inflation will fall to 3.2 percent by the end of the year.
    Based on the EU's HICP measure, inflation rose slightly to 4.5 percent in June from 4.38 percent in May.
    Romania's economy improved in the first quarter due to exports while consumption stalled and the dynamics of loans to the private sector remained in negative territory and the pass-through of the policy rate to interest rates on new corporate and household loans remains slow, the bank said.

    Romania's Gross Domestic Product expanded by 0.6 percent in the first quarter from the previous quarter for annual growth of 2.2 percent, up from 1.2 percent in the fourth quarter.
    The NBR noted that volatility in investors' risk appetite and persistent uncertainty surrounding economic activity in Europe and elsewhere "temporarily entailed wider fluctuations in the leu exchange rate," largely repeating last month's statement.
    But a new precautionary agreement with international financial institutions and structural reforms should strengthen the economy's resilience to external shocks, the NBR added.
    Last week the International Monetary Fund and the European Union reached a 4 billion euro standby loan agreement with Romania that should help protect it from financial turmoil.
    The Romania leu weakened in May but has been steady on the year, quoted at 4.42 leu to the euro today compared with 4.44 on Jan. 1, 2013.


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