Tuesday, September 30, 2014

Romania cuts rate 25 bps, reserve requirement 200 bps

   Romania's central bank cut its policy rate by a further 25 basis points to 3.0 percent, as expected, to help boost inflation and stimulate domestic demand that has slowed down further.
    The National Bank of Romania (NBR), which has cut its rate by 225 basis points since August 2013,  also cut the minimum reserve requirements on leu-denominated liabilities to 10 percent from 12 percent while it maintained the reserve requirement on foreign currency deposits at 16 percent, both to boost lending and to continue the harmonization with European Union practices.
    To help reduce volatility in Romania's money market, the NBR also narrowed its rate corridor on standing facility to plus/minus 2.75 percentage points from 3.0 percentage points with the lending facility rate cut to 5.75 percent from 6.25 percent while the deposit rate stayed at 0.25 percent.
    "The analysis of the latest macroeconomic data shows the annual inflation rate staying at low levels, on a path lower than previously forecasted," the central bank said, mainly due to changes in agricultural prices and subdued euro area inflation, overlapping with the persistence of the negative output gap and the downward adjustment in inflation expectations.
    "The consolidation over the medium term of the projected inflation path at readings significantly lower than those forecasted previously is still uncertain," the NBR said.

    In August the NBR cut its inflation forecast to 2.2 percent by the end of 2014 and 3.0 percent by the end of 2015, with an average rate of 1.4 percent this year and 2.4 percent next year.
    Romania's headline inflation rate eased to 0.8 percent in August from 1.0 percent in July, with the average annual rate falling to 1.2 percent from 1.5 percent. Based on the euro zone's HICP gauge, average inflation eased to 1.3 percent from 1.4 percent.
    The NBR targets inflation of 2.5 percent, plus/minus one percentage point.
    Economic growth in Romania has been slowing, primarily due to a deceleration in domestic demand with economic sectors slowing or contracting. In the second quarter of the year, Gross Domestic Product contracted by 1.0 percent from the first for annual growth of 1.2 percent, down from a rate of 3.9 percent in the first quarter.
    Domestic currency lending rose amid lower lending rates with the share of foreign exchange loans to total credit to the private sector down to 57.1 percent in August from 58 percent in June and 64.4 percent in May 2012.



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