Tuesday, February 4, 2014

Romania cuts rate 25 bps to 3.5%, sixth cut in a row

    Romania's central bank cut its policy rate by 25 basis points to 3.50 percent, its sixth rate cut in a row, but maintained the minimum reserve requirements for both leu- and foreign currency denominated deposits by banks.
    The National Bank of Romania (NBR) said further details about its decision, along with the quarterly inflation report, would be released later at a press briefing at the bank's headquarters.
    The rate cut was expected by most economists who also expect this to be the last reduction in the current easing cycle that started in July 2013. Since then, rates have been cut by 175 basis points, including 50 basis points this year, in response to falling inflation.
    Romania's inflation rate fell to 1.6 percent in December, down from a 2013-high of 6.0 percent in January. In its November inflation report, the NBR cut its end-2013 inflation forecast to 1.8 percent and the 2014 forecast to 3.0 percent.
    The central bank, which targets inflation of 2.5 percent, plus/minus one percentage point, said it expected inflation to fall below its lower bound in the first half of this year and then gradually rise.
    Romania's Gross Domestic Product expanded by 1.6 percent in the third quarter of 2013 from the second quarter for annual growth of 4.1 percent, up from 1.5 percent in the previous quarter.
    In addition to the 25 basis point rate cut in January, the NBR cut the reserve requirement on leu-deposits by 300 basis points to 12 percent and the requirement on foreign-currency deposits by 200 basis points to 18 percent. This cut came after the central bank in December released a report that showed the proportion of non-performing bank loans was 21.7 percent end-October.
    Last week currency dealers said the central bank indirectly had sold euros to limit the decline in the leu amid the general decline in emerging market currencies. Last year the leu fell in May, along with other emerging market currencies, but ended the year only 0.7 percent lower against the euro. The intervention last year helped the leu buck the overall declining trend in emerging market currencies and the leu was trading at 4.46 to the euro today, up from 4.47 end-2013.



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