Romania Has ‘Limited’ Room for Rates Cuts, Deputy Governor Says

Romania has “some additional” room to cut its benchmark interest rate further as inflation is set to pick up from a record low in the second part of the year, Deputy Central Bank Governor Cristian Popa said.

“There is some additional space but that is very limited compared to the adjustment that already happened,” Popa told reporters at the Vienna Euromoney conference today.

The Bucharest-based Banca Nationala a Romaniei lowered the rate to a record-low 3.75 percent on Jan. 8 and surprisingly cut minimum reserve requirements for leu liabilities to 12 percent from 15 percent and for foreign-currency ones to 18 percent from 20 percent. Twenty-three economists in a Bloomberg survey from November see the key rate at 3.5 percent this year.

The leu, which fell to a seven-month low after the decision, weakened 0.1 percent to 4.5292 per euro as of 5:17 p.m. in Bucharest, according to data compiled by Bloomberg.

“I think it confirms that the volatility that resulted has been very contained and the move has been digested very well so far by the markets,” Popa said.

Romanian policymakers have lowered the benchmark rate by 1.5 percentage points since July 2013 as they seek to spur leu-denominated lending and fuel growth after the inflation rate fell to a record low 1.55 percent in December.

The central bank is targeting 2014 price growth of 1.5 percent to 3.5 percent and sees year-end inflation at 3 percent, after a drop to about 1 percent in the first quarter.

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