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BUCHAREST (Romania), February 2 (SeeNews) – Romania's central bank on Thursday decided to cut its monetary policy rate to 5.50% from 5.75%, the third consecutive cut in three months, in a bid to support economic growth in the country.
Romania's economy, which is expected to have expanded by around 2.5% in 2011, is seen losing steam this year on the back of falling exports to the crisis-hit Eurozone. At the same time, inflation has been on a downward trend since November, allowing the central bank to loosen the monetary screws.
End-2011 inflation slowed down to 3.14% from 7.96% year earlier, in line with the central bank's forecasts.
"This confirms the consolidation of disinflation, with the annual inflation rate reaching the target against the background of a prudent monetary policy stance, the fading-out of the first-round effect of the VAT rate hike, and of favourable trends in volatile prices, especially of food items as well as their impact on the prices of processed food products," the central bank, BNR, said in a statement.
It added that negative output gap persists despite positive dynamics in exports, industrial and farming outputs with the current account deficit staying at sustainable levels. There was also a gradual recovery of credit to the private sector.
"The external environment shows that uncertainties remain regarding the resolution of the Eurozone sovereign debt crisis, with impact on investors’ risk aversion, capital flow volatility, as well as on global economic developments," BNR said.
"We think that the continuation of the fiscal consolidation program agreed with the IMF and EU was a key driver of today’s decision. [...] The decline of the inflation rate to a record low of 2-2.5% in in the second quarter of 2012 was another reason behind the decision to continue the easing cycle," Erste Group said in a note.
Erste's forecast was echoed by ING bank: "We believe [...] inflation could ease further, moving from the latest reading of 3.1% in December to probably below 2% during March-May before rebounding in the second half of 2012 to the 4.0% area, mainly on a likely rebound in volatile food prices."
Erste also said that it does not rule out a continuation of the easing cycle in the next months before a reversal in the second half of 2012.
BNR also decided on Thursday to maintain the current ratio of minimum reserves on both leu- and foreign currency-denominated liabilities.
"The gradual and judicious adjustment of real broad monetary conditions will help effectively anchor expectations throughout the projection horizon given the outlook for inflation, namely a continued slowdown in both headline and core inflation in the immediately forthcoming period," the bank said.
BNR targets end-2012 inflation of 3.0% with a variation band of one percentage point on either side.
BNR cut the key rate to 6.0% in November and to 5.75% in January after keeping it unchanged at 6.25% since May 2010.
Romania's central bank will release its quarterly inflation report, approved on Thursday, on February 7.