Romania cuts rate amid weak demand

January 09, 2014 - 12:00:00 am



BUCHAREST: Romania cut its main interest rate to a record low of 3.75 percent yesterday, to boost demand and against a background of falling inflation in many parts of Eastern Europe.

The National Bank of Romania (BNR), which lowered the base rate by a quarter of a point, had made a 0.25-point cut early in November and suggested that further cuts could follow.

Capital Economics analysts had forecast the reduction “in order to provide further support to domestic demand, which still appears to be struggling”.

“Given that inflation is below target, and set to remain so this year, and that domestic demand remains sluggish, we expect at least one more rate cut this year” said William Jackson, emerging markets economist for the research company.

Romania’s bank was to give further details on its decision later on Wednesday.

The annual inflation rate was steady in November, at 1.83 percent.

Inflation in several central European countries has fallen to unusually low levels and strong disinflation is also a matter of concern in some countries in western Europe.

Following the interest rate cut in November, the International Monetary Fund said that Romania’s economy would grow faster than the rest of the region in 2014, forecasting its real gross domestic product growth to expand by 2.2 percent, with drivers switching gradually from net exports to domestic demand.

In July, Romania concluded a new deal with the IMF and the EU on a ¤4bn ($5.4bn) precautionary credit line, which the government intends to tap only in the case of a crisis.

AFP

comments powered by Disqus