The bank also reduced the minimum required reserve ratio for leu-denominated deposits to 10% from 12%, but kept unchanged at 16% the ratio for foreign-currency deposits.
Analysts were largely expecting a rate cut at Tuesday board meeting, as the inflation is significantly below the central bank’s target, while the economic growth wavered in recent months.
While the gross domestic product was still higher than in the same period of last year, Romania’s economy slid into technical recession at the end of the second quarter, as GDP was down against the previous quarter.
The annual pace of economic growth witnessed a slowdown, the central bank noted, mainly due to the deceleration in domestic demand dynamics, caused by a decrease in investments. “On the supply side, most economic sectors reported a relatively less favourable performance than in the previous period, consisting either in slower annual growth rates (industry and services) or contractions in business volumes (construction).”
The annual inflation eased to 0.84% in August, and the central bank reduced its forecast on the year-end inflation to 2.2% from 3.3% previously, saying the inflation rate is expected to decelerate at a faster pace than initially estimated.
The annual inflation rate stays at low levels, on a path lower than previously forecasted, “mainly under the impact of developments in agri-food prices and of the subdued euro area inflation, overlapping the persistence of the negative output gap and the downward adjustment in inflation expectations.”
In order to mitigate interbank money market rate volatility, the central bank’s board also decided to narrow the symmetrical corridor of interest rates on its standing facilities around the policy rate to ±2.75 percentage points from ±3 percentage points. “Thus, starting 1 October 2014, the interest rate on the lending facility (Lombard) will be lowered to an annual 5.75% from 6.25%, while its deposit facility rate will remain at 0.25% per annum,” the bank said.
“These decisions are meant to ensure price stability over the medium term in line with the 2.5 percent ±1 percentage point flat target, along with creating favourable conditions for the sustainable recovery of lending, which is likely to help achieve balanced and lasting economic growth.”