Romania’s central bank cuts monetary policy interest rate to new low

Romania’s National Bank BNR decided to continue easing the monetary policy and reduced the interest rate for Romanian currency from 3.25% to 3%, starting October 1, 2014. BNR took this decision as the inflation rate remains close to historic lows, while economic growth saw a significant slowdown, due to lower growth in domestic growth and fewer investments. The central bank also cut the minimum reserve requirements ratio on leu-denominated liabilities of credit institutions to 10% from 12% to give more liquidity to local banks and to encourage lending in local currency and help the economy. The minimum reserve requirements ratio on foreign currency-denominated liabilities stays at 16%, BNR announced. This is the fourth cut of the monetary policy interest rate made by the BNR this year, and brings the rate to a new low of 3%, from 4% at the end of 2012. The minimum reserve requirements ratio for local currency liabilities has also been reduced from 20% at the end of last year to 10%. This monetary easing increased lending in RON. “Domestic currency lending in real terms saw a faster pace of increase, amid lower lending rates on new business to companies and households as a result of the pass-through of policy rate signals. At the same time, the dynamics of foreign currency credit remained deep in negative territory,” said the BNR in a press statement. “Against this background, the BNR Board decided to lower the monetary policy rate to 3.0% per annum, from 3.25%, starting October 1, 2014 and to further pursue adequate liquidity management in the banking system,” BNR explained. To reduce the interbank money market rate volatility and ensure a better transmission of the policy rate signal, the BNR also decided to narrow the symmetrical corridor of interest rates on BNR’s standing facilities around the policy rate to ±2.75 percentage points from ±3 percentage points. Thus, starting October 1, 2014, the interest rate on the BNR’s lending facility (Lombard) will be lowered to an annual 5.75% from 6.25%, while its deposit facility rate will remain at 0.25% per annum. Andrei Chirileasa, andrei@romania-insider.com