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BNR: Annual inflation rate expected to rise more steeply in coming months than anticipated in February
Annual inflation rate is expected to rise somewhat more steeply in the coming months than anticipated in February, under the impact of supply-side shocks, according to current estimates, a release from the National Bank of Romania (BNR) informs.
According to the Central Bank, the determinants for the further worsening of the near-term inflation outlook are the much larger increases expected to be recorded by the price of fuels, and especially by the prices of processed foods, mainly under the influence of higher growth in crude oil and oil prices, amid the war in Ukraine and the international sanctions in place.
"The inflationary effects thus exerted are foreseen to prevail in the near term over the substantial disinflationary impact presumably generated by the one-year extension of capping schemes for electricity and natural gas prices for households. However, significant uncertainties are still associated with how the impact of these schemes is assessed and included in the CPI calculation,'' the BNR informs.
According to the quoted source, however, uncertainties and risks to the medium-term outlook are rising considerably in the context of the war in Ukraine and the associated sanctions, which represent a new global shock on the supply side, likely to have divergent effects on inflation and economic activity, mainly as worsening the energy crisis and bottlenecks in production chains, but also through other channels, including the dynamics of the European / global economy and inflation, consumer and investor confidence, and the perception of risk region, with an impact on financing costs.
The BNR notes that an important source of uncertainty and risk also remains the absorption of European funds, especially those related to the Next Generation EU program, which is conditional on meeting strict targets and milestones in the implementation of approved projects, while improving the epidemic situation. Internally, it led to the cessation of the state of alert in the first decade of March 2022 and the lifting of all mobility restrictions, with favorable effects on economic activity.
At the same time, uncertainties and risks are associated with the future conduct of fiscal policy, given the need to continue fiscal consolidation in line with the commitments made in the excessive deficit procedure, but in a difficult economic and social context internally and globally, marked by the implications of the war in Ukraine and the sanctions imposed on Russia, but also of the tendency to tighten the financing conditions.
At its meeting on Tuesday, April 5, 2022, based on the currently available assessments and data, as well as in the face of very high uncertainties, the BNR Board decided to increase the monetary policy interest rate to 3% per annum from 2.50% per annum, starting on April 6, 2022. At the same time, it was decided to increase the interest rate for the credit facility (Lombard) to 4% per annum, from 3.50% per annum and to increase the interest rate on the deposit at 2% per annum, from 1.50%, as well as maintaining firm control over the liquidity of the money market.
The BNR Board also decided to maintain the current levels of minimum required reserve ratios for liabilities in lei and foreign currency of credit institutions.
The decisions of the BNR Board aim at anchoring medium-term inflation expectations, as well as stimulating savings by increasing bank interest rates, in order to sustainably bring back the annual inflation rate in line with the stationary target of 2.5% ? 1 percentage point, in a manner to contribute to the achievement of sustainable economic growth in the context of the fiscal consolidation process.
The BNR states that it is closely monitoring developments in the domestic and international environment and is prepared to use the tools at its disposal to meet the fundamental objective of medium-term price stability.
The account (minutes) of discussions underlying the adoption of the monetary policy decision during today's meeting will be posted on the BNR website on 15 April 2022 at 3:00 p.m.
According to the announced calendar, the next meeting of the BNR Board dedicated to monetary policy will take place on May 10, 2022.