Romania: Central Bank reduces the monetary policy rate to a new record low
January 7, 2015
At its 7 January meeting, the National Bank of Romania (NBR) decided to cut the monetary policy rate by 25 basis points. The rate cut from 2.75% to 2.50% met market expectations and marked a new record low. However, the NBR decided to maintain the minimum reserve requirements ratio on both leu-denominated liabilities and foreign currency-denominated liabilities of credit institutions at 10.0% and 14.0%, respectively.
In an attempt to temper interest rate volatility on the money and banking markets, the NBR decided to narrow the symmetrical corridor around the monetary policy rate from plus/minus 2.50% to plus/minus 2.25%. As a result, the Bank lowered the lending facility (Lombard) from 5.25% to 4.75%, while it kept the deposit facility unchanged at 0.25%.
In its accompanying statement, the Central Bank noted that economic growth is slowly gaining momentum supported by an improvement in both of its major components—consumption and investment. In addition, the real growth rate of domestic currency loans picked up due to the pass-through effect of the successive policy rate cuts.
Regarding price developments, the Bank pointed out that annual inflation has been at lower levels than previously estimated. This is the consequence of, “the drop in volatile prices, subdued euro area inflation, the persistence of the negative output gap, and the ongoing downward adjustment in inflation expectations.”
Against this background, NBR’s accommodative monetary policy is meant to ensure price stability over the medium-term in line with the Bank’s tolerance margin of plus/minus 1.0% around its target of 2.5%.
Author: Dirina Mançellari, Senior Economist