FOR THE FOURTH TIME IN 2010, The NBR cut the policy rate to 6.25%, in line with analyst expectations

• NBR: The increasing fiscal risk and Greece concerns could make it difficult for the economy to recover

The Romanian Central Bank cut the monetary policy rate to 6.25%, in line with the expectations of the analysts contacted by BURSA, who were all unanimous in predicting the rate would be cut by 0.25%.

"The updated forecast expects disinflation to continue, as well a relative increase in foreign risk

associated with the accomplishment of the goals of the fiscal policy and of revenues in the public sector, and increased uncertainty on the evolution of the foreign economic environment due to the recent tension caused by the public finance crisis in Greece. These factors could make it harder for the Romanian economy to recover", the NBR said in a press release yesterday.

The Central Bank kept the minimum reserve requirements for lei and foreign currencies unchanged, and reaffirmed its intention to pursue an "adequate management" of the liquidity in the banking system.

Analysts were quick to react, predicting a new rate cut would take place this summer.

"The slow recovery of the economy and the absence of inflationary pressures leave room for further rate cuts, and the next step in this process, which will probably be 0.25% as well, will most likely happen in the next meeting in June", says Ilker Domac, chief-analyst at CitiBank for the South-Eastern European region. He said cutting the interest rates below 6% is possible, but rather unlikely.

"In our opinion, it is unlikely that the NBR would significantly lower the interest rate below the 6% threshold", said Citibank"s analyst, who explained that the problems that could arise in the coming months with the implementation of the program agreed with the IMF will make the NBR remain cautious.

In this context, starting May 5, 2010, the rate on the deposit facility will be lowered to 2.25 percent per annum from 2.5 percent and the rate on the lending facility (Lombard) will be 10.25 percent per annum versus 10.5 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 15.5 percent starting with the May 24-June 23, 2010, maintenance period.

This year, the NBR cut the policy rate four times, from 8% to its current value of 6.25%.