ECONOMY

In Brief

Romania central bank leaves rates steady BUCHAREST (Reuters) – Romania’s central bank, as expected, left interest rates on hold at 6.25 percent at its last meeting in 2010 yesterday, as higher prices caused by a sales tax hike left limited scope for it to aid the recession-hit economy. The European Union’s second-poorest country had the fastest growth rates in the bloc until a real estate and credit bubble burst in 2008, prompting an economic contraction of more than 7 percent last year, from which it is still struggling to recover. The bank halted a 400-basis-point easing cycle after the government raised value-added tax by 5 percentage points in July, part of efforts to cut its budget gap and keep an International Monetary Fund-led bailout on track. The spike in inflation is expected to last until the second half of next year due to the base effect, and the bank has made clear that its temporary nature meant rates would not be hiked unless second-round effects were significant. «Today’s decision was widely expected,» said Melania Hancila, chief economist at Volksbank in Bucharest. «At the next meeting, we expect the central bank to keep rates on hold. I do believe the bank will resume its relaxing cycle only after Romania seals a new deal with the European Commission and the IMF and authorities implement the required measures.» The central bank maintained its 2012 inflation target at a 2-4 percent band and adopted a new multiannual target from 2013 of 1.5-3.5 percent. Instability threatens Italian budget goals Standard & Poor’s Ratings Service warned that political instability may jeopardize Italy’s bid to cut the budget deficit, even as it affirmed the credit rating of the euro-region’s most indebted economy. Italy’s ratings «could come under downward pressure if political instability were to impede the implementation of the current plan,» S&P said in a statement yesterday, affirming Italy’s A+ long-term and A-1+ short-term sovereign credit rating with a «stable» outlook. «Potential political instability could be a key risk,» S&P said. Surging borrowing costs triggered by Greece’s near-default and Europe’s sovereign-debt crisis prompted Prime Minister Silvio Berlusconi’s government to pass deficit cuts worth 24.9 billion euros ($34.9 billion). (Bloomberg) Polish lenders Italy’s largest retail bank, Intesa Sanpaolo SpA, is examining a possible offer for Poland’s Polbank in order to expand its East European operations, a financial source said yesterday. On Monday, Greece’s second-largest bank EFG Eurobank announced it was looking for a strategic partner to acquire a majority stake in its Polbank unit. «The due diligence is nearly finished. The management board meeting on November 9 could be the first occasion» to decide on a formal offer, the source said, adding that at present there was nothing formal. Intesa Sanpaolo declined to comment. Newspapers cite BNP Paribas and Raffeisen as among five possible buyers for Polbank. (Reuters) Not Argentina Greece is in a tighter fiscal spot than Argentina was before its 2001 debt default but Greece’s use of the euro gives it protection that the South American country lacked, a San Francisco Federal Reserve Bank researcher said on Monday. Revelations of Greece’s skyrocketing deficit precipitated Europe’s first sovereign debt crisis, which reverberated around the globe last spring, as investors worried about fallout from a potential default. Despite a rescue package pulled together by fellow eurozone members and the International Monetary Fund, Greek sovereign debt is trading at levels that suggest default is still a possibility, according to San Francisco Fed economist Fernanda Nechio. Despite some parallels between Greece’s situation and Argentina’s earlier in the decade, Greece is in some ways less vulnerable, Nechio argued. «Greece’s use of the euro protects it from speculative attack,» she wrote in the latest San Francisco Fed Economic Letter. Moreover, Nechio said: «It gains a measure of protection by being under the monetary authority of the European Central Bank, one of whose primary objectives is the maintenance of stability in the euro area.» (Reuters)