Romania’s central bank on Tuesday cut its key interest rate for the sixth session in a row to a new low as it expects inflation to embark on a slight uptrend from the current low levels.
The Board of the National Bank of Romania reduced the monetary policy rate to 2 percent from 2.25 percent, in line with economists’ expectations. In February, the bank cut the rate by 25 basis points.
The central bank has lowered the rate steadily from 3.5 percent in five quarter-point reductions since August last year.
“Looking ahead, evidence so far suggests the annual inflation rate embarking on a slight uptrend, still below the lower bound of the variation band of the flat target, reflecting in particular the combined effect of developments in volatile prices and of the narrowing, yet still significant negative output gap,” the bank said in a statement.
“The uncertainty surrounding this outlook arises from both the external environment – mostly from the geopolitical tensions in the region, the situation in Greece and the euro area, and from the growing divergence between the monetary policy stances pursued by major central banks worldwide – and the domestic environment.”
Inflation held steady at 0.4 percent in February, which is way off the bank’s aim to keep inflation between 1.5 percent and 3.5 percent.
The economy grew 2.6 percent in the fourth quarter, which was slower than the 3.3 percent expansion in the previous three months. In 2014, the economy grew 2.9 percent.
The bank also said it narrowed the symmetrical corridor of interest rates on its standing facilities around the policy rate to ?1.75 percentage points from ?2.00 percentage points.
Consequently, the deposit rate was left unchanged at 0.25 percent, while the lending facility, or lombard rate, was cut to 3.75 percent from 4.25 percent.
Policymakers also left unchanged the current levels of minimum reserve requirement ratios on liabilities of credit institutions. The ratios will be adjusted, in compliance with the long-term programme for bringing them into line with European levels, when domestic and external conditions allow it, the bank said.
“The decisions are meant to ensure price stability over the medium term, in line with the 2.5 percent ?1 percentage point flat target, in a manner supportive of economic growth, also by restoring confidence and reinvigorating lending,” the bank said.
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