Romania: Central Bank cuts the monetary policy rate
August 4, 2014
At its 4 August meeting, the National Bank of Romania (NBR) decided to cut the monetary policy rate by 25 basis points from 3.50% to 3.25%, which met market expectations. However, the NBR decided to maintain the minimum reserve requirement ratio for both leu- and foreign currency-denominated liabilities of credit institutions.
According to the Bank, the Romanian economy is showing signs of improvement. Economic activity was fostered by a favorable performance of the industrial sector, which was fuelled by stronger domestic demand.
Regarding price developments, the Bank pointed out that the downward trend in annual inflation is continuing, mainly because of, “the dynamics of volatile food prices, the nominal appreciation of the local currency, [and] the influence of import prices partly reflecting subdued euro area inflation.” As a result, when presenting the quarterly Inflation Report, the Central Bank announced that it had decided to cut its inflation forecast for both this year and next. According to the new forecasts, in 2014 the Bank expects inflation of 2.2%, which represents a significant downward revision from the 3.3% projected in its May Inflation Report. For next year, NBR expects headline inflation to close the year at 3.0%, which is down from the 3.3% forecast in May.
Author: Dirina Mançellari, Senior Economist