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NBR Board decisions on monetary policy

In its meeting of 8 January 2020, the Board of the National Bank of Romania decided the following:

  • to keep the monetary policy rate at 2.50 percent per annum;

  • to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending facility rate at 3.50 percent per annum;

  • to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

The annual CPI inflation rate declined to 3.4 percent in October 2019, from 3.5 percent in September, then rose to 3.8 percent in November, i.e. above the variation band of the target, in line with the latest medium-term forecast. The advance against September owed mainly to the hike in fruit and vegetable prices, but also to the pick-up in core inflation.

The annual adjusted CORE2 inflation rate (which excludes from the CPI inflation administered prices, volatile prices, and tobacco product and alcoholic beverage prices) continued to grow in the first two months of 2019 Q4, from 3.4 percent in September to a slightly higher-than-projected 3.5 percent in November. The increase reflected the impact of higher global agri-food commodity prices and the slightly softer leu versus the euro, overlapping significant inflationary pressures from demand and unit labour costs.

The average annual CPI inflation rate fell to 3.7 percent in October, before returning to 3.8 percent in November 2019, the same level reported in September 2019; calculated based on the Harmonised Index of Consumer Prices, the average annual inflation rate dropped further, reaching 3.8 percent in October-November, against 3.9 percent in September.

Economic growth continued to lose momentum in 2019 Q3, posting an annual pace of 3 percent, compared with 4.4 percent in the previous quarter. On the demand side, the contribution of household consumption remained significant, yet it shrank sharply (down to 3 percentage points amid the unfavourable agricultural year), falling substantially behind that of gross fixed capital formation (5.9 percentage points). Net exports saw their negative contribution to GDP dynamics rising, given the more pronounced reacceleration in the growth of imports relative to that of exports of goods and services.

The latest statistical data point to mixed developments in annual terms for consumption, investment and industrial production in October: further high dynamics of households’ purchases of goods and services and a swift rise in the volume of construction works, on the one hand, and the larger contraction in industrial production and sliding new orders in manufacturing, on the other hand.

Moreover, the most recent balance-of-payments data highlight the slower year-on-year worsening of the trade balance in October compared with Q3. However, the current account deficit recorded a renewed widening, on the back of the deterioration of the primary and secondary income balances, while its coverage by foreign direct investment and capital transfers narrowed.

The annual growth rate of credit to the private sector continued to moderate slightly in October and November, to 7.5 percent and 7.2 percent respectively from 7.7 percent in September, its average for the two months overall declining to 7.32 percent versus 7.9 percent in Q3. With the deceleration owing exclusively to the foreign currency component, the share of domestic currency loans in total private sector credit widened further, hitting a post-May 1996 high of 67.2 percent in November.

The latest assessments reconfirm the outlook for the annual inflation rate to end the year 2019 slightly above the variation band of the target, before returning and staying in the upper half of the band in the near run, at slightly lower values than in the latest medium-term forecast published in the November 2019 Inflation Report.

Heightened uncertainties and risks surrounding the inflation outlook stem from the fiscal and income policy stance, given the domestic election calendar. The trend of the current account deficit remains a matter of concern as well. Uncertainties are also generated by developments in the euro area and global economies, amid the increase in geopolitical tensions and in vulnerabilities on some emerging markets, while the accommodative stance of the ECB’s and the Fed’s monetary policies, as well as the stance of central banks in the region, remain relevant.

In today’s meeting, based on the currently available data and assessments, the NBR Board decided to keep unchanged the monetary policy rate at 2.50 percent per annum, while maintaining strict control over money market liquidity. Moreover, the NBR Board decided to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending (Lombard) facility rate at 3.50 percent per annum. Furthermore, the central bank maintained the current levels of the minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

The NBR Board’s decisions aim to ensure and preserve price stability over the medium term in a manner conducive to achieving sustainable economic growth and amid safeguarding financial stability. The NBR Board underlines that the balanced macroeconomic policy mix and the implementation of structural reforms designed to foster the growth potential over the long term are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand potential adverse developments.

The account (minutes) of discussions underlying the adoption of the monetary policy decision during today’s meeting will be posted on the NBR’s website on 15 January 2020, at 3:00 p.m. In line with the announced calendar, the next monetary policy meeting of the NBR Board is scheduled for 7 February 2020, when a new quarterly Inflation Report is to be examined.



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