Romania's Central Bank Cuts Interest Rate To 10%

Starting today, Romania's Central Bank cut the interest rate to 10%, from 10.25% previously.

At the same time the bank decided to keep the level of minimum cash reserves the commercial banks should hold with the central bank.

The decisions came as a surprise, as most financial analysts expected the Central Bank to keep the interest rate at its previous level and lower the minimum cash reserves limit.

This could mark the beginning of a new Central Bank policy towards a relaxation of its monetary policy, and a reverse of the trend set starting with June 2007. "This is a signal, but one flower does not bring about spring; several successive cuts of the interest rate are needed, before commercial banks get the message to lower their interest rates," said Romanian Commercial Bank head economist Lucian Anghel.

He added that the Central Bank decisions does not put money in the market, hence banks will be unable to lower interest rates to both deposits and credits.

"It may be that the Central Bank wants first to see the Government put its act where its mouth is, and uses the funds raised by the Ministry of Finance in investment, and not in consumption," Anghel said.