Romania’s National Bank (BNR) expects lower inflation for this year and has decided to cut interest rates for local currency even further in order to boost lending and help the economic recovery.

BNR’s Governor Mugur Isarescu asked bankers to find new projects to finance in order to accelerate lending and to refrain from lowering interest rates for deposits.

“We haven’t taken this decision lightly (to cut the monetary policy interest rate – e.n.) and one of the main reasons is a potential reaction of banks to lower, first of all, the interest rates they pay for savings. We don’t encourage this,” Isarescu said.

The BNR board decided on Monday, August 4, to reduce the monetary policy interest rate for local currency (RON) to 3.25% per year, from 3.5% per year. This is a new low for BNR’s monetary policy interest rate. The rate cut is the third this year, following similar decisions in January and February.

The BNR made this decision as Romania’s annual inflation rate reached a new all-time low in June, standing at 0.66%. The BNR lowered its annual inflation forecast for 2014 from 3.1 % to 2.2 %, and also for 2015 from 3.1% to 3%.

“If you look at the new forecast, there might be room for further cuts of the monetary policy interest rate,” Isarescu added.

editor@romania-insider.com