NBR cuts key rate to a record low

The National Bank of Romania lowered its benchmark interest rate by 50 basis points in today’s rate-setting session, to 6.5%, the lowest level since the adoption of inflation targeting monetary policy.

NBR decided to cut key rate to 6.5% from 7.0% with effect as of March 30, 2010.

The central bank has also decided to pursue an adequate cash flow management and to leave reserve requirements for leu and fx-denominated liabilities unchanged.

The NBR will continue to closely monitor domestic developments and the global economic evolutions so as to adequately adjust its instruments to ensure the achievement of its objectives related to both price stability and financial stability, while fulfilling the commitments under the agreements with the European Union, the International Monetary Fund and other international financial institutions.

The majority of economists polled by Wall-Street had predicted a 50 basis points cut, from 7.0% to 6.5%. They said that the key rate would be made against the background of a resumption in the disinflationary trend.

“BNR’s reduction in the benchmark interest rate and upkeep of the monetary market liquidity is expected to encourage a cut in lending rates and hence to reignite lending activity”, Florentina Manea, junior analyst at RBS Romania told Wall-Street.

NBR’s decision in today’s session to leave reserve requirements unchanged has been in line with economists’ forecasts.

“I don’t think that the central bank will cut the required reserve ratios, at least not now given the poor market liquidity. The remainder of the year could, however, see new cuts in RRR for fx-denominated liabilities”, said Nicolae Chidesciuc, senior economist of ING Bank Romania.

The National Bank of Romania had cut the key rate in January by 0.5% and by another half percentage point in February, this being the third in a series of rate cut that continued this year.

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