* Analysts expect rates at 3.5 pct through the year
* Governor Isarescu to explain decision at 1300 GMT
(Adds analyst comment, details)
BUCHAREST Feb 4 Romania's central bank cut its
benchmark interest rate by a quarter point to a new record low
of 3.5 percent on Tuesday, defying pressure on emerging market
policymakers to bolster their currencies against turbulence.
Romania's move probably ends a rate-cutting cycle that has
cut borrowing costs by 175 basis points since last July. The
central bank had held back previously due to persistently high
"Today's decision was probably a close call," said William
Jackson, an economist at Capital Economics, noting the need to
shore up capital flows to support the leu currency.
Even so, he said, the decision "serves as a reminder that
not all emerging markets have suffered heavily during the recent
bout of market turmoil."
Romania's leu showed little reaction to the
decision. It was up around 0.7 percent on the day at 1255 GMT.
India, Turkey and South Africa were among emerging economies
who hiked rates abruptly last month to protect their currencies
against the rout.
Romania has had scope to cut rates thanks to a bumper
harvest in 2013 which helped push consumer prices to an all-time
low of 1.6 percent in December, within the central bank's
1.5-3.5 percent target. That, coupled with weak lending, have
underpinned monetary policy easing.
Inflation is set to quicken again in the second half of this
year, by contrast with last year and a series of modest tax
hikes take effect. And with both Romania's presidential election
and elections in the European parliament due this year, analysts
believe the cycle of rate cuts has ended.
"In our opinion this was the last interest rate cut," said
Vlad Muscalu, senior economist at ING Bank in Bucharest. "This
has become even more reasonable given the difficult
The central bank left the minimum reserve requirements for
commercial banks' liabilities unchanged on Tuesday, after it
surprised markets last month by cutting them for both the leu
and foreign currencies, releasing liquidity into the market.
Both Governor Mugur Isarescu and deputy Governor Cristian
Popa have said minimum reserve requirements would gradually be
lowered this year.
Governor Mugur Isarescu will explain the bank's decision in
a news conference at 1300 GMT.
(Reporting by Luiza Ilie; additional reporting by Sujata Rao
and Natsuko Waki; editing by Matthias Williams)