Romanian Monetary Policy Eased

November 2, 2011

Amid Europe’s faltering economic prognosis, a few central banks that had made post-Great Recession rate hikes have cut them, and many other central banks have paused.  The National Bank of Romania’s reference rate since May 2010 of 6.25% had constituted the cyclical low, and it is being lowered further now, breaking a string of eleven straight policy meetings without a rate rate change decision.  The new level of 6.0% still represents the EU’s highest.  Five rate cuts totaling 225 basis points were implemented in 2009 followed by another four reductions in 2010 totaling 175 bps.  Today’s move brings the cumulative drop to 425 basis points.

A statement on the central bank web site says the cut today, which is not accompanied by any change in reserve requirements, is meant to help ensure adequate banking liquidity.  Earlier this month, Romania reported a sharper-than-expected decline of CPI inflation to 3.5% in September from 4.3% in August.  The central bank observes an inflation target of 2-4%, so inflation is now within those boundaries.  Nonetheless, today’s easing was not anticipated by analysts, who were instead predicting that the reference rate would be kept at 6.25%.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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