Romania's central lender slashes key rate to 8.5%, cuts reserves to 30% for foreign currency

Publish date: 05-08-2009
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The central lender BNR decided to reduce the monetary policy rate from 9 percent to 8.5 percent per year, according to analysts' expectations, but surprised the market by cutting minimum mandatory reserves for foreign currency from 35 percent to 30 percent.

Moreover, BNR decided to cut the maturity for repo operations of pumping money on the market from one month to one week, the central lender's release reads.

Following today's decision, the monetary policy rate goes back to the level of February – March 2008, when BNR was pursuing the tightening of the monetary policy. Starting with the beginning of 2009, the central lender slashed the key rate by 1.75 percentage points, from 10.25 percent to 8.5 percent per year. 

The interest rates for the credit facility (lombard) and for the deposit facility will subsequently be reduced from 13 percent to 12.5 percent and from 5 percent to 4.5 percent respectively, as they are fixed at plus/minus 4 percentage points compared to the key rate.

However, the real surprise was the decision to cut minimum mandatory reserves for foreign currency, as most analysts expected the central lender to keep the current level in order to be able to analyze the effects of the last monetary policy decision on the market.

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