BNR Cuts Key Rate By 50 Bps To New Low Of 4.5%

Update 08.05.2013 By Florentina Dragu

Romania’s central bank Monday lowered its main monetary policy rate for the second straight meeting by 50 basis points to a record low of 4.5% a year, exceeding expectations of a 25 bps cut.

Local analysts expected the key lending rate to be lowered to 4.75% at today’s meeting.

The minimum reserve requirements were left unchanged at 15% for Romanian-leu denominated liabilities and at 20% for foreign currency liabilities.

Market participants said the rate cut had no immediate effect on the leu’s evolution.

The central bank expects inflation will continue to decelerate in the upcoming period and that the annual rate will fall into the bank’s target range once the effects of last summer’s supply-side shock have faded, the bank said in a separate statement Monday.

The bank, which has recently lowered its inflation forecast for 2013 to 3.2% from 3.5%, has examined and approved its quarterly inflation report in today’s meeting. The report will be presented during a press conference on August 6.

“The central bank’s board considers that the necessary conditions are in place for a cautious adjustment of monetary conditions by adequately calibrating its policy tools in order to ensure the consolidation of disinflation,” the statement noted.

Moreover, the bank expects private lending will pick up in the next months, while economic growth is estimated to accelerate.

“Furthermore, the prospects for concluding a new precautionary arrangement with international financial institutions are expected to consolidate the stability of the macroeconomic framework and boost structural reforms, thereby strengthening the resilience of the domestic economy to external shocks,” the central bank said.

Romania last week said it has reached an agreement at staff level to secure a EUR4 billion precautionary loan from the International Monetary Fund and the European Commission, its third such accord since the economic and financial crisis first hit in late 2008.

The IMF recently revised upward its growth estimate on Romania’s economy to 2% in 2013 from 1.6% previously, saying it expects better contributions from agriculture and exports.