The bank kept the minimum reserve requirements unchanged at 15% for Romanian-leu denominated liabilities and at 20% for foreign currency liabilities.
The rate cut was in line with analyst expectations as it follows several months of reduced inflation, with the annual rate at 2.6% in February, the lowest in over two decades.
The central bank targets an annual inflation of 3% at the end of 2012, plus/minus one percentage point around the band. The bank recently revised down its year-end forecast to 3% from 3.5%, saying it expects a favorable base effect and lower volatile prices.
The fourth consecutive rate cuts rapidly fed through into interbank money market rates which fell below the policy rate, the central bank noted.
“Nevertheless, tensions and uncertainties related to the euro area sovereign debt crisis have also affected Romania’s banking sector as credit institutions have mutually contained exposures. This had a negative effect on the distribution of liquidity across the banking sector and on the money market, demanding a heightened fine-tuning role of the central bank, in line with European and global trends. These developments, along with the specific loan-to-deposit ratios and the deleveraging process undertaken by some credit institutions, in line with trends at the European level, result in a slower recovery of non-government lending,” it said in a news release.
The bank expects see an ongoing transmission of the monetary signal, “especially in the area of corporate lending where the dynamics of new leu-denominated credits are close to those of new foreign currency loans.”
Inflation is expected to rise temporarily in the second half of 2012 without overshooting the variation band around the 3 percent target. “The consolidation of inflation within the variation band around the target paves the way for maintaining financial stability and achieving sustainable economic growth. However, domestic risks related to upcoming elections, along with uncertainties regarding developments in the external environment, capital flows and volatile prices require a further judicious adjustment of monetary policy instruments in order to effectively anchor inflation expectations and ensure price stability in the medium run,” the central bank also said.
The next central bank monetary policy meeting is scheduled for May 2, when the new quarterly Inflation Report is to be examined.