Central Bank of Romania Lowered Key Interest to 7.5%

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Confirming analysts’ expectations, the Board of the National Bank of Romania decided to lower the key interest rate from 8% to 7.5% a year and keep the minimum mandatory reserves in lei and foreign currency at the same level, BNR announced, cited by ACT Media news agency.

 The central bank also announced that it will further exert an adequate control on the financial markets’ liquidity through market operations. The BNR Board explained they had intended to bring the key interest paid for the banks’ deposits closer to the effective sterilization interest rate, as a signal sent to the financial market.

“The cutting down of the monetary policy interest rate to 7.50% envisages the convergence thereof with the effective sterilization interest rate with a view to improving monetary policy signals, the strengthening of the significance of the monetary policy interest rate as main instrument of the central bank’s policy, and providing a better anchorage for inflationist expectations, also on the longer term,” reads the BNR communiqué.

The central bank said it keeps the mandatory reserves in lei and foreign currency at a rather high level out of prudence, in order to counteract risks arisen from the possible tax relaxation and the widening current account deficit. “Although inflationary outlooks on the short term have improved - inclusively as far as expectations are concerned - risks related to a possible relaxation of revenues and tax policies and the further widening of the current account deficit call for a further prudent approach of the monetary policy.

 BNR will further attentively monitor the evolution of macroeconomic indicators and their outlooks with a view to ensuring monetary conditions compatible with the medium-term disinflation goals and the strengthening of the convergence process, yet also relying on support of the other components of the economic policies mix,” reads the cited cen.bank release.

The next meeting of the BNR Board dedicated to the monetary policy is scheduled on May 2, 2007, when the fresh report on inflation will be analyzed.

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