Romania's central bank cut its monetary policy rate by another 25 basis points to 1.75 percent and the minimum reserve requirements on leu-liabilities by 200 basis points to 8.00 percent after forecasting that inflation will drop to around zero percent during the 12 months.
The National Bank of Romania (NBR), which has now cut its rate by 350 basis points since embarking on an easing cycle in July 2013, also narrowed the symmetrical corridor of rates on its standing facilities to 1.5 percentage points from 1.75 percentage points.
This means the Lombard lending facility rate is cut to 3.25 percent from 3.75 percent while the deposit rate remains at 0.25 percent.
While the reserve requirement on domestic currency liabilities was cut - a policy in line with the central bank's effort to harmonize its reserve requirement mechanism to that of the euro zone - the minimum reserve requirement on banks' foreign currency liabilities was maintained at 14 percent.
In its latest quarterly inflation report, which will be released on May 8, the NBR forecast that inflation will be around nil between June 2015 and May 2016 before returning to the central bank's tolerance range in the final quarter of next year.
In its previous forecast from February, the central bank expected inflation to embark on a slight uptrend, though still remain below the lower bound. For 2015 the central bank expected inflation of 2.1 percent by the end of this year and to reach 2.4 percent by end-2016.
The main reason for the cut in the central bank's inflation forecast stems from the reduction in the VAT rate to 9 percent from 24 percent for all food items, non-alcoholic beverages and public food services as of June 1.
The NBP targets inflation of 2.5 percent, plus/minus one percentage point. Consumer price rose by 0.8 percent in March from an inflation rate of 0.4 percent in February.
The National Bank of Romania issued the following statement: