A Ninth Rate Cut in Romania

May 4, 2010

The National Bank of Romania cut its policy interest rate to 6.25% from 6.5% as expected.  The 25-basis point magnitude of this ninth easing since February 2009 matches the size of the first move, while each of the intervening seven reductions were by 50 basis points including ones in each month of 1Q10.  Romania is experiencing weak growth, and CPI inflation dropped to a three-year low of 4.2% in March from 5.2% two months earlier.  The leu has not appreciated as sharply as some other East European currencies against the beleaguered euro, and today’s reduced size of easing may reflect official guardedness against the possibility of contagion from the Greek debt crisis.  The sequence of 50-bp rate cuts during 2009 after the initial 25-bp cut in February were twice by 50 bps in June, then once each in August and September.

The juxtaposition of Romania’s 25-basis point easing with Australia’s 25-bp rate hike today highlights the unsynchronized nature of this transition in the world business cycle.  Disparate cycles create conditions for cumulating exchange rate shifts.  A rising dollar signifies that the United States is perceived in the advanced camp even before the Fed has joined other central banks in starting to normalize short-term interest rates.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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