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Bloomberg: Romania Edges Closer to First Interest-Rate Hike in a Decade
Romania is closing in on its first interest-rate increase in almost a decade as inflation bounces back and the Balkan nation’s economy expands at one of the continent’s quickest paces, Bloomberg correspondent reports.
While eight of 13 economists in a Bloomberg survey say the central bank will hold benchmark borrowing costs at a record-low 1.75 percent on Monday, five predict a hike to 2 percent. If not this week, analysts agree the move will come sometime in the first quarter. A decision is due at about noon in Bucharest, after which Governor Mugur Isarescu will hold a news conference.
Romania is edging closer to following the Czech Republic and the U.K. in lifting borrowing costs, even as Isarescu warns that raising rates before the European Central Bank risks luring volatile foreign capital and denting financial stability. But the central bank has little choice: inflation accelerated to the most in four years in November, while a raft of tax cuts and public-sector pay rises drove economic growth to an annual 8.8 percent in the third quarter.
“Resurgent inflation will prompt policy makers to pull the trigger as early as this month,” Marcin Kujawski, a London-based economist at Nomura International Plc, said Friday by email. “But the decision may be a close call because investment activity remains soft, despite the impressive consumer-drive economic growth.”
Money markets have priced in higher rates. The three-month inter-bank offered rate, known as ROBOR, has gained 120 basis points in the past six months and now exceeds 2 percent, the highest in three years. Having missed last year’s rally in regional currencies from Prague to Warsaw, Romania’s leu has already gained 0.7 percent against the euro in 2018.
In its last meeting of 2017, the central bank narrowed its liquidity-regulating interest-rate corridor for a second time in what was seen as a prelude to a rate hike early this year. Isarescu has also voiced concerns over fiscal policies that have confused businesses and triggered warnings from the European Union over the budget deficit.