National Bank of Romania Implements an Eighth Rate Cut

March 29, 2010

Romania’s central bank monetary policy interest rate has been cut to 6.5% from 7.0%.  This was the third monthly reduction in a row.  Romania got a late start easing its stance because of stubbornly high interest rates and political risks.  The benchmark rate had been at a lofty 10.25% from July 2008 into February 2009.  Five cuts were implemented last year, initially by 25 basis points in February and then twice by 50 bps in June and by that same amount in August and September.  After cumulative cuts of 225 bps in 2009 and 150 bps this year, the 6.5% rate level is still the EU’s highestA statement released by the central bank today stresses a resumption of disinflation.  There’s plenty of resource slack, and the leu has risen 3.7% this year against the euro.  The 12-month rate of CPI inflation had risen from 4.3% last October to 5.2% in January because of higher excise taxation but fell back to 4.49% in February.  Although liquidity in Romania’s banking system is now improving, officials decided to leave their low reserve requirement for now.  The next Romanian policy review on May 4 will be accompanied by new inflation forecasts. 

Unless the leu’s fortunes take a turn for the worse, a ninth cut in interest rates looks likely.  The following future policy rate guidance is ambivalent.

The NBR will continue to closely monitor domestic developments and global economic evolutions so as to adequately adjust its instruments to ensure the achievement of its objectives related to both price stability and financial stability, in the context of achieving the commitments made under the agreements with the European Union, the International Monetary Fund and other international financial institutions.

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



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