Thursday, November 3, 2011

Romania Central Bank Cuts Rate 25bps to 6.00%

The Banca Nationala a Romaniei cut its key monetary policy interest rate by 25 basis points to 6.00% from 6.25%.  The Bank said: "A significant improvement was recorded by the short-term inflation outlook, in line with NBR expectations regarding the end of the cycle of supply-side shock effects following the VAT rate hike that affected the economy and the favourable impact of the domestic agricultural production. However, the balance of medium‑term risks is still asymmetric, as they relate to external developments, investors’ risk aversion and capital flow volatility, as well as the fiscal policy stance and administered price adjustments."

Previously the Bank held the interest rate unchanged at 6.25%, its last move was a 25 basis point cut in May 2010.  Romania reported annual consumer price inflation of 3.45% in September, down from 4.25% in August, 4.85% in July, 7.9% in June, 8.4% in May and 8.3% in April 2011, and now within the Bank's inflation target range of 3% plus or minus 1%.  The Bank previously noted it expects energy sector reforms and prices rises to keep inflation elevated this year, however much of the short term effects are dissipating.  

The Romanian economy expanded 0.2% in Q2 this year (0.7% in Q1), placing annual growth at 0.3% (0.3% in Q1).  Romania's currency, the Romanian Leu (RON), has gained about 1% against the US dollar this year, and the USDRON exchange rate last traded around 3.25.  The Banca Nationala a Romaniei next meets on the 5th of January 2012.


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