Romania's central bank cuts key rate by 0.25%

Special Report:Global Financial Crisis

BUCHAREST, Feb. 4 (Chinese media) -- The National Bank of Romania's (BNR) decided Wednesday to cut the key interest rate to 10.00 percent down from 10.25 percent, but keep the minimum required reserves ratios unchanged, announced the bank in a press release.

It is the first time in 17 months when the BNR cut the monetary policy rate. Last year, the bank raised the key rate in seven steps, from 7 percent at the beginning of the year to 10.25 percent in August. The new rate will be applied starting with Thursday.

The BNR kept the minimum required reserves ratio on both national currency leu and foreign currencies liabilities of credit institutions at 18 percent, and 40 percent, respectively.

Local analysts said that the key rate reduction is just a proof that the central bank "cares about economic growth", but the impact of the rate cut upon inter-bank interest rates is quite low as they were on Wednesday much higher than the key rate.

On the money market on Wednesday, overnight rates reached 15.23 percent a year and weekly rates as much as 15.62 percent.

According to the central bank, the annual inflation rate was 6.3 percent at end-2008, down from the 9.04 percent peak reached in July 2008 and from 6.57 percent in Dec. 2007.

The disinflation process was resumed and strengthened as a result of the favorable dynamic of the volatile prices (fuels and foodstuffs) and of the money policy conduct.

Nevertheless, the relaxation of the salary and fiscal policies in the election year of 2008 and the depreciation of the national currency amid the investors' deeper aversion to risk kept the inflationary pressures going.

The BNR said the effects of the global financial and economic crisis are increasingly being felt in cut exports and foreign financing, in an increased volatility in the forex market correlated with the regional tendencies and with the lack of appetite to risk by the foreign investors.