Romania's central bank cuts rate, sees lower inflation

Romania's central bank on Monday reduced its main interest rate to a record low of 4.5 percent as it tried to support weak domestic demand.

The 0.5-point cut, bigger than anticipated, comes just a month after the National Bank of Romania (BNR) reduced its rate by a quarter of a point.

The BNR had previously left the rate unchanged at 5.25 percent for 15 months.

"The BNR considers that the necessary conditions are in place for a cautious adjustment of monetary conditions by adequately calibrating its policy tools in order to ensure the consolidation of disinflation," central bank governor Mugur Isarescu told a press conference.

"The necessary prerequisites exist for a recovery of lending to the private sector, restoring confidence and achieving balanced and lasting economic growth," he added.

Last week, the International Monetary Fund revised upward its 2013 growth forecast, from 1.6 to 2.0 percent, with exports and agriculture seen as the engines of the economy.

The IMF also announced an agreement was reached on a new two-year stand-by deal that will give Romania access to a 4.0-billion-euro credit line.

The prospect of concluding such an agreement "is likely to consolidate macro-economic stability and boost structural reforms, thereby strengthening the resilience of the domestic economy to external shocks", Isarescu stressed.

"The surprise decision by the BNR to accelerate the pace of policy easing reflects several factors, including a growing conviction that inflation will fall back by the end of this year and the insurance offered by a new precautionary stand-by arrangement with the IMF," commented Neil Shearing, an analyst at Capital Economics,.

"With domestic demand weakening we think that further cuts may now be likely and are nudging down our end-year forecast for rates to 4 percent," he added.