The decision was widely anticipated in the market after the centrist-right government led by Mihai Ungureanu was toppled in a no-confidence vote Friday, raising fears about the country’s ability to carry on needed reforms to bring the budget deficit to eurozone levels and bolster economic recovery.
The government’s collapse came even while joint teams from the International Monetary Fund and the European Union were reviewing Romania’s progress under a EUR5 billion loan agreement. The foreign institutions delayed their review until a new government is in place.
Romania’s currency took a hard hit in the few days following the announcement, dropping around 1.5% against the euro to a record low of 4.443 units, from 4.377 units at Thursday closing.
The central bank also left the minimum reserve requirements unchanged at 15% for Romanian-leu denominated liabilities and at 20% for foreign currency liabilities.
“The recent development of macroeconomic indicators show a continuing disinflation process, in line with the central bank forecasts, as well as a moderate recovery in lending activity, supported also by the monetary policy decisions over the past months,” the central bank said in a detailed statement later Wednesday.
However, domestic demand remains weak, while exports slowed down “amid a worsening outlook of short term economic growth in Europe and elsewhere,” the bank said.
The central bank has examined and approved its quarterly inflation report, due for release on May 8.
“Current forecasts reconfirm the inflation rate is likely to remain within the central bank’s target throughout the entire forecast horizon, despite an unfavorable temporary statistical base effect which is to be expected in the second part of 2012,” the central bank said.
The short-term outlook is however affected by significant fluctuations of investors’ risk appetite, it noted.
Romanian annual inflation eased to a record low of 2.4% in March, from 2.6% a month earlier. 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 upward its year-end forecast to 3.2% from 3%, citing a less favorable base effect than previously estimated.