Romanian Ctrl Bk Head: Rate Cut Was Needed

Romania’s central bank cut Wednesday the key monetary policy rate by 0.5 percentage points to 9.5% and kept unchanged the minimum required reserves ratio on both leu-denominated and foreign currencies liabilities of credit institutions at 18%, and 40%, respectively.

The fiscal and salary policies made great steps in stabilizing the macroeconomic imbalances, being procyclical during the economic crisis context, so that the monetary policy could not remain also procyclical, the governor told a news conference Thursday.

“We were surprised the International Monetary Fund accepted such a large budget deficit, but even with a deficit of 5% of the GDP the fiscal policy is procyclical, namely it is restrained … Other policy has to become countercyclical, it has to be eased,” Isarescu said.

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The governor explained that the Government measures adopted in the budget revision and its intentions as regards the public salaries are “very large steps” to level the macroeconomic imbalances, after the procyclical policies in the past years, when in good economic conditions, the budget was also expansive.

“The monetary policy cannot remain procyclical. We have the others (policies). It’s a not so happy mixture,” Isarescu said.

However, he added that the key rate cut by 50 basis points, to 9.5%, should not be understood as an eased monetary policy.

“I do not think Romania can afford real positive interest rates higher than 3%,” Isarescu said.

The governor also said the decision to cut rate shows the “comfortable” trend of the inflation and rejected some analysts’ opinion that the rate cut was “aggressive.”