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Romania is set to prolong more than a year of steady interest rates, looking past the European Union’s fastest inflation to take its cue from the global shift toward looser monetary policy.
With hikes to benchmark borrowing costs likely to attract volatile capital inflows, the central bank has instead battled prices by pulling excess cash out of the financial system. Inflation dipped for the first time this year in June.
Meanwhile, the Federal Reserve cut interest rates last week for the first time since the financial crisis. Economists surveyed by Bloomberg see Romania’s key rate remaining at 2.5% on Monday.
“We expect the central bank to stay on hold and maintain its reference to ‘strict control over money-market liquidity,’” Valentin Tataru, an economist at ING Groep (AS:INGA) NV in Bucharest, said in an emailed note. “If inflation prints lower a couple more times, we could see a return to local policy easing.”
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.
While consumer-price growth in Romania has slowed, it remains above the target band of 1.5% and 3.5% as the economy booms. As well as its money-market measures, the central bank is counting on a good harvest helping to ease produce costs.
Governor Mugur Isarescu will present an updated inflation forecast later this week.