Romania keeps key rate unchanged

Romania kept borrowing costs unchanged for a seventh meeting as the central bank forecasts that downward price pressure from tax cuts will start to fade later this year. The benchmark interest rate was left at a record-low 1.75 percent, according to an e-mailed statement Thursday, matching the predictions of all 16 economists in a survey. The bank maintained reserve requirements for foreign-currency liabilities at 12 percent and kept those for leu deposits at 8 percent. Governor Mugur Isarescu will hold a briefing at 3 p.m. in Bucharest.

Rate setters in the European Union's second-poorest country are breaking ranks with their regional peers and the European Central bank, shunning looser monetary policy even as consumer prices remain mired in the first bout of deflation since communism. Romanian policy makers see inflation reaching 3.4 percent by the end of next year, near the upper limit of their target range.

"The main reason we see the central bank diverging from regional central banks is the much elevated inflation profile versus the other countries," Ciprian Dascalu, a Bucharest-based economist at ING Bank Romania SA, said in a note before the decision. "Tightening too late might entail significant risks to domestic macrostability but upcoming elections might make some board members more reluctant to act preemptively."

With consumer set to start growing, Isarescu said in a Feb. 24 interview that the central bank would probably tighten policy sooner than previously envisaged, starting by narrowing the interest-rate corridor it uses for liquidity management. That prospect has buoyed the leu, this year's fourth-best performer against the euro among 24 emerging-market currencies tracked by Bloomberg, with a gain of 1.1 percent.