RCB approves half point rate cut

May 7, 2009

, BUCHAREST, May  7 – The Romanian central bank on Wednesday said it had lowered its benchmark interest rate by half a point to 9.5 percent in a first step toward easing credit conditions.

The rate had risen to its highest level, 10.25 percent, in August 2008 but has been coming down as companies face liquidity shortages in the global economic crisis.

The bank approved a quarter point cut in February.

"It\’s good news for the recovery of the economy," said Lucian Anghel, chief economist at the Romanian Commercial Bank.

Bank officials meeting Wednesday also decided to maintain obligatory reserve levels at 18 percent for holdings in the local currency and 40 percent for foreign currencies.

"As long as the level of obligatory reserves is not lowered, credit will not revive," warned Cristian Parvan of the Romanian business leaders\’ association.

Analysts at Capital Economics meanwhile said Wednesday\’s move by the bank had been a "surprise," with markets expecting rates to have been maintained.

"Financial and external vulnerabilities mean that the pace of future cuts will be slow," they said, "but rates could still hit 8.5 percent by the end of the year."

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