Romanias central bank cuts monetary policy rate by 25bps.

By bne IntelliNews November 3, 2011
The monetary board cut the policy interest rate by 25bps to 6%, Romania's central bank announced. Past disinflation and the subdued inflationary expectations are mentioned as the main reasons for the move. The adjusted CORE2 inflation, calculated by the central bank, eased to 2.72% y/y in September from 2.92% y/y one month earlier. The annual headline inflation, 3.45% in September, is projected to remain within 3% +/-1pps in 2011 and 2012. The rate cut is expected to be paralleled by the banks' lending rates, central bank stresses. Separately, the central bank stressed the importance of savings for lowering a country's dependence on foreign financing and encouraged banks to foster domestic savings. IntelliNews Comment : The rate cut was received with mixed reactions regarding its impact on financial intermediation and growth. The policy interest rate was maintained at 6.25% for some 18 months. Meanwhile, the annual inflation nearly doubled from 4.4% y/y last May to 8.4% y/y in May 2011, to further decelerate to 3.5% in September this year. The incremental policy interest rate cut is much smaller than the deceleration marked by the inflation, on one hand. On the other hand, the first effects of the rate cut are expected to surface in the primary T-bill auctions where the Treasury might enjoy smaller financing cost. For the banks to cut the interest rates for local currency loans the central bank should perhaps take more decisive steps and go further with more interest rate cuts.

Romanias central bank cuts monetary policy rate by 25bps.

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