Romania to Persist With Europe's Steepest Interest-Rate Hikes

(Bloomberg) -- Economists see Romania extending the European Union's steepest run of interest-rate increases.

A majority of analysts in a Bloomberg survey says the Black Sea nation's central bank will raise its benchmark for a third straight meeting on Wednesday, to 2.5 percent. The outcome may not be so clear-cut, according to Governor Mugur Isarescu, who said last week that the hikes to date will help bring inflation back to target.

As Europe's economic recovery propels growth in the continent's ex-communist east, Romania followed the Czech Republic in lifting borrowing costs to contain consumer prices. The Czechs have already raised rates three times, though over a longer period, while the European Central Bank is so far just unwinding stimulus measures. Isarescu is grappling with the fastest inflation in five years and eastern Europe's most rapidly expanding economy.

“There are few arguments for the central bank to take a pause in the hiking cycle,” said Ciprian Dascalu, chief economist at ING Groep Bank in Bucharest. “The central bank will probably send the same message that it's trying to contain inflation expectations and their impact on the inflation outlook.”

Inflation reached 4.7 percent from a year earlier in February, exceeding the upper end of the central bank's 1.5 percent-3.5 percent target range. Gross domestic product -- fueled by tax cuts and boosts to state wages -- may advance 6.1 percent this year, according to government projections.

While Isarescu also said last week that depreciation pressure on the national currency is a reason to raise interest rates, the central bank's mandate is to focus on inflation. The leu has gained 0.2 percent against the euro this year, trailing regional peers such as Ukraine's hryvnia and the Czech koruna.

--With assistance from Harumi Ichikura

To contact the reporter on this story: Andra Timu in Bucharest at atimu@bloomberg.net.

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net, Andrew Langley

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