The Board of the National Bank of Romania (BNR) on Wednesday decided to cut the monetary policy interest rate from 7.5% annually to 7.25% annually, reads a BNR release. The Board also decided to exercise through market operations a liquidity control adjusted to the monetary market conditions and to maintain the banks' current level of the minimum compulsory reserves in domestic and hard currencies and to continue the harmonization process of the Regulation regarding the policy of the minimum compulsory reserves with the standards of the European Central Bank. According to BNR the analysis of the macro economic indicators proves a continuation of the disinflation process, more accentuated than in the previous prognosis, with the annual inflation rate dropping to 3.66% in March as compared with 4.87% in December, against the background of a smoother dynamics of the administrated prices and of a cut in the volatile prices. There is also a drop in the annual rate of the basic inflation, which- calculated without the impact of the tax on vice went down to 2.8%. This drop also reflects the maintaining of some restrictive monetary conditions and also the favourable implications of Romania's EU accession in the respect of boosting competition in the market of goods.
Our view: The NBR’s decision to cut the monetary policy interest rate does not come as a surprise in the market, though the analysts’ opinions were divergent this time. Some of them consider that the reduction of the compulsory reserves, both in foreign and domestic currencies might have a positive effect in the market, whereas the reduction of the reference interest rate will not influence the market conditions in such a great extent.