Romania inflation to surge in Feb, rate hike seen

Food

Romania’s inflation is likely to raise sharply in February due to increases in gas prices, putting pressure on the central bank to hike interest rates later this month, a Reuters poll showed on Friday.

The survey’s mid-range forecast showed annual inflation at 8.1% in February, compared to 7.3% in January. Monthly inflation is seen at 0.8%, compared with 0.9% in the previous month. “We expect the non-food component to increase by around 1% on the month mainly because of the 8.5% hike in gas prices ... (and) persistent upward pressure on food prices,” said Nicolaie Alexandru-Chidesciuc, senior economist at ING.

Romanian inflation surged in the second half of last year because of rising food prices and global turmoil on financial markets which weakened the lei (RON) currency. Analysts expect inflation to peak at 8.5% in March, compared with an 8.3% estimation from the central bank.

The survey also showed price growth slowing towards 5.8% in December, a touch below the central bank forecast of 5.9%. Pressures are seen easing because of an expected better harvest and a strengthening of the lei later this year. The central bank targets 2008 inflation at 2.8-4.8%.

 

Hike or hikes?

The inflation outlook is likely to force the central bank to raise borrowing costs for the fourth time in a row in March, the poll showed. Ten out of 14 analysts expect a 50 basis points hike to 9.50% at the next meeting on March 26, one sees a rise to 10%, while the rest expect the benchmark rate to remain unchanged. The bank raised rates by a full point in February. “Because of rising inflationary pressures which could keep annual price growth above 8% in the first half of the year, I expect hikes of 0.5 percentage points in March and May,” said Catalina Constantinescu, analyst at ABN Amro in Bucharest. Five analysts expect rates at 10% in May. But most of them see rates remaining at 9.50% for a while as the bank would not want to sacrifice the external gap for the sake of fighting inflation, by adding firming pressure on the lei. “The central bank signaled that the correction of the current account gap became absolutely necessary and we expect the bank to prove its good intentions,” said Melania Hancila, research analyst at BCR. (Reuters)

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