It was the sixth consecutive cut since July 2013 and analysts believe increased inflationary pressures and the recent developments in emerging markets will prompt the bank to halt its monetary easing cycle.
The central bank left its minimum reserve requirements unchanged at 12% for Romanian-leu denominated liabilities and at 18% for foreign currency liabilities at the Tuesday meeting.
The bank estimates the annual inflation rate will continue to decelerate during the first half of 2014, amid declining food prices stemming from last year’s good farming output, but warns of upward pressure from administered prices and a shift in investor appetite.
“The latest quarterly inflation report reiterates the outlook for a sharp, albeit temporary, deceleration of the annual inflation rate in the first half of 2014,” the central bank said in a statement after its monetary policy meeting.
Romania’s annual inflation slowed to a post-communist low of 1.55% in December, from 1.88% a month earlier.
The inflation rate is expected to accelerate to the upper-half of the central bank’s target range of 1.5%-3.5% in the second part of 2014, largely due to administered price adjustments and the gradual recovery in domestic demand as economic activity picks up, the central bank said.
“Upward risks stem from capital flow volatility on the back of a fluctuating investor appetite and the changes in exposure to the emerging economies, following the recent monetary policy decisions of major central banks across the globe and the ongoing cross-border deleveraging in the banking system,” the bank noted.