In its latest monetary policy meeting, the central bank cut the key rate by 50 basis points to a record low 4.5%.
“We have lowered the policy rate by a cumulative 75 basis points to 4.5 percent in July and August as we expect headline inflation to continue its declining trend,” the central bank said in letter sent to Washington.
“We will closely monitor inflation developments following these easing steps and would consider gradually lowering the policy rate further only if inflation drops inside our target band as projected, inflation expectations remain firmly anchored, and market conditions permit.”
The bank remains committed to reducing inflation to within its medium-term target band of 2.5±1 percentage point by September and “to keeping inflation in the target band from then on.”
The next monetary policy meeting is scheduled for September 30, when inflation data for September will not be available. Therefore, a new rate cut could come only in the next meeting, November 5.
In August, Romania’s annual inflation slowed to 3.67%, following a 0.2% reduction in consumer prices compared with the previous month.
In the letter of intent, the central bank also says it will keep the ratios for minimum required reserves unchanged in the coming months.
“Going forward, the NBR will preserve the wedge between minimum requirements for foreign and domestic currency liabilities. Moreover, any considered changes would be implemented gradually and take into account inflation expectations as well as liquidity and prudential considerations.”
In July, Romania and the IMF agreed on a new two-year precautionary stand-by agreement. The fund will provide EUR2 billion, while the European Commission will add another EUR2 billion under the European Union’s balance of payments facility.