Romania’s Monetary Policy Rate Kept Steady

June 30, 2010

Credit policy in Romania was left on hold as expected.  It had been in easing mode until early last month.  Policymakers had cut their key interest rate five times by a combined 225 basis points in 2009 and four more times earlier in 2010 by a further 175 bps.  In contrast to a cyclical peak of 10.25% maintained from end-July 2008 until February 2009, the rate is now four percentage points lower at 6.25%.  The last cut was announced May 4.  Reserve requirements were also retained as they were by policymakers.

A statement released by officials today cited several reasons for being prudently cautious.  Romania’s currency, the leu, is not immune from the sovereign risk concerns about the region.  Although the on-year 4.42% rise of the CPI in May was not far from March’s three-year low, a planned VAT hike will boost headline CPI inflation.  Unfortunately for Romania, GDP was still contracting in the first quarter of this year.  The Policy Board next meets on August 4.

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

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