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Romania's central lender slashes benchmark rate to 10%, keeps minimum mandatory reserves

Romania's central bank BNR decided today to cut the monetary policy interest rate by 0.25 percentage points to 10 percent, in line with expectations, and to maintain the current levels of the minimum mandatory reserves at 18 percent for passives in lei and 40 percent for those in foreign currency.

Analysts polled by NewsIn anticipated the slash in the key interest rate, but many also believed BNR would lower the minimum mandatory reserves for deposits in lei and in foreign currency, to drag downwards interest rates on the interbank market.

This is the first cut BNR operates for the benchmark rate in one year and seven months. The last one was decided in June 2007, when the key rate was lowered from 7.25 percent to 7 percent.

The decision could mark the beginning of a new cycle of monetary policy relaxation, according to analysts, in the context of the current economic and financial turmoil, which would reduce the pressure on inflation.

The central lender has significantly harshened the monetary policy starting with October 2007, by steadily increasing the key interest for seven times, from 7 percent to 10.25 percent, amid an excessive demand that put pressure on prices, correlated with a relaxed fiscal policy.

But the economic and financial crisis that hit Romania last fall reduced the pressure on demand and lending slowed down significantly, as banks were faced with financing problems and BNR tightened the lending rules for the population.

The inflation rate lowered at the end of last year to 6.3 percent, below the central lender's estimate of 6.7 percent, but remained significantly above the targeted 3.8 percent plus or minus one percentage point. But a new inflationist factor has emerged, as the national currency fell exceeding the exchange rate of 4.3 lei against the euro, compared to 4 units per euro at the end of last year.

The cut in the monetary policy rate will also lower the two benchmark rates connected to it. The rate for the lombard credit goes down from 14.25 percent to 14 percent per year, while the rate for deposits slips to an annual 6 percent from the current 6.25 percent.

The two rates are fixed along a symmetric range of plus or minus four percentage points of the benchmark rate.

 

Sursa: http://www.newsin.ro

Tags: percent policy central reserves benchmark mandatory minimum euro bnr