However, the steep deceleration in the annual inflation rate is a good reason for a rate cut and the measure is adequate as long as the decrease is sustainable, Franks said.
“I would have waited a few more months before making a policy reaction. But… truth is inflation has come down very sharply. That (the rate cut) is appropriate as long as we see a reduction in inflation,” the IMF official said.
Franks added that further rate cuts should consider other factors beside the inflation rate, such as the leu’s exchange rate and possible changes of the capital flows.
Romanian central bank last week lowered its main interest rate by a quarter of a point to a record low of 6% a year, the first cut in 18 months, after the consumer price index dropped for the fourth consecutive month and the annual inflation eased to the lowest level in over two decades.
Central bank governor Mugur Isarescu said the lower inflation creates scope for further easing, but mentioned additional rate cuts would depend on market developments.
Monday, the bank revised down its forecasts on the year-end inflation to 3.3% in 2011 and to 3% in 2012, from 4.6% and 3.5%, respectively.