An Unexpected Interest Rate Cut in Romania

May 6, 2015

The National Bank of Romania’s monetary policy rate had been cut five times by 25 basis points each time in 2014, as well as by that amount in January, February and March of this year.  Analysts were not generally expecting today’s further accommodation that saw the main interest rate fall to 1.75% from 2.0%.  A reserve requirement was meanwhile also reduced to 8% from 10%, and the overnight lending rate was lower 50 basis points to 3.25%, which additionally narrowed its distance from an unchanged 0.25% deposit rate.  An explanation of these actions said “successive rate cuts, narrowing of the symmetrical corridor of interest rates on the NBR’s standing facilities around the policy rate, and a gradual reduction in minimum reserve requirements ratios” are meant to promote bank lending.  New forecasts, moreover, show “a notably lower path of the expected annual inflation rate. The substantial revision of this path stems mainly from incorporating the measure on lowering the VAT rate to 9 percent, from 24 percent previously, for all food items, non-alcoholic beverages and public food services as of 1 June 2015.”

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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