Romania’s National Bank BNR decided to continue easing the monetary policy and reduced the interest rate for Romanian currency from 3.25% to 3%, starting October 1, 2014. BNR took this decision as the inflation rate remains close to historic lows, while economic growth saw a significant slowdown, due to lower growth in domestic growth and fewer investments.

The central bank also cut the minimum reserve requirements ratio on leu-denominated liabilities of credit institutions to 10% from 12% to give more liquidity to local banks and to encourage lending in local currency and help the economy.

The minimum reserve requirements ratio on foreign currency-denominated liabilities stays at 16%, BNR announced.

This is the fourth cut of the monetary policy interest rate made by the BNR this year, and brings the rate to a new low of 3%, from 4% at the end of 2012. The minimum reserve requirements ratio for local currency liabilities has also been reduced from 20% at the end of last year to 10%. This monetary easing increased lending in RON.

“Domestic currency lending in real terms saw a faster pace of increase, amid lower lending rates on new business to companies and households as a result of the pass-through of policy rate signals. At the same time, the dynamics of foreign currency credit remained deep in negative territory,” said the BNR in a press statement.

“Against this background, the BNR Board decided to lower the monetary policy rate to 3.0% per annum, from 3.25%, starting October 1, 2014 and to further pursue adequate liquidity management in the banking system,” BNR explained.

To reduce the interbank money market rate volatility and ensure a better transmission of the policy rate signal, the BNR also decided to narrow the symmetrical corridor of interest rates on BNR’s standing facilities around the policy rate to ±2.75 percentage points from ±3 percentage points. Thus, starting October 1, 2014, the interest rate on the BNR’s 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.

Andrei Chirileasa, andrei@romania-insider.com