The bank also lowered its minimum requirement ratio for hard currency deposits to 14% from 16%, while keeping the requirements for leu deposits at 10%.
The central bank’s board also decided to narrow the symmetrical corridor of interest rates on the standing facilities around the policy rate to plus/minus 2.5 percentage points from plus/minus 2.75 percentage points.
“Thus, starting 5 November 2014, the interest rate on (the central bank’s) lending facility (Lombard) will be lowered to an annual 5.25% from 5.75%, while its deposit facility rate will remain at 0.25% per annum,” the bank said in a statement.
Analysts largely expected a rate cut at today’s board meeting, the third reduction since August, as Romania’s economy is in technical recession following two consecutive quarters of gross domestic product contraction.
Earlier today, the European Commission cut its growth forecast for Romania GDP to 2% for 2014.
Statistical data show the annual inflation rate stays at low levels even after the fading of the impact arising from the cut in the VAT rate for some bakery products, the bank said in a more detailed statement. “The 12-month inflation rate followed a path lower than previously forecasted and ran close to the lower bound of the variation band of the target, mainly due to subdued developments in volatile food prices, low euro area inflation, as well as to the persistence of the negative output gap and the downward adjustment in inflation expectations.” The annual inflation rate stood at 1.54% in September, up from 0.84% a month earlier, amid the fading of the statistical effect of the 2013 VAT rate cut on milling and bakery products. “Looking at the real economy, the latest data point to a relative deceleration in the annual dynamics of industrial output, given that domestic demand further saw weak recovery, owing particularly to investment developments, and exports witnessed a slacker uptrend,” the bank said. The growth rate of domestic currency loans further posted positive readings, thanks to the pass-through of the successive policy rate cuts onto lending rates on new business to companies and households. However, the real annual dynamics of credit to the private sector remained in negative territory, against the background of the sharper contraction in foreign currency credit (stocks) and the ongoing operations to remove non-performing loans from credit institutions’ balance sheets.