Key interest rate slashed over disinflation, shrinking demand and agreement with IMF

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National Bank governor Mugur Isarescu explained on Thursday that disinflation, shrinking demand and the loan agreement with the International Monetary Fund were the elements that determined the reduction of the monetary policy interest rate, thus responding analysts who had voiced surprise over the central bank’s decision.

„We were surprised that you were taken by surprise, but the arguments for this move are inflation having taken to a downward trend that will strengthen in the nest quarters and in 2010, as a result of shrinking aggregate demand, the lower depreciation potential of the local leu, and the decreasing risk that the evolution of the exchange rate affects financial stability, under the effect of Romania’s securing the external financing package,” said Isarescu.

The governor also mentioned that the slash of the key interest rate was determined by the continued rapid adjustment of the external imbalance.
The National Bank’s Board of Directors decided on Wednesday to reduce the monetary policy interest rate to 9.5 percent per annum year from 10.0 percent, starting May 7.

The Board also decided to actively use market operations in order to appropriately manage the banking system’s liquidities, keep both the reserve requirements for domestic currency- denominated liabilities, as well as those for the forex liabilities of credit institutions unchanged, BNR said in a release.

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