Romania Monetary Policy March 2016


Central Bank leaves policy rate unchanged for seventh consecutive meeting

In its policy meeting on 31 March, the National Bank of Romania (NBR) met market expectations in deciding to keep the monetary policy rate unchanged at 1.75%, where it has been resting since May 2015. In addition, the Bank did not change the symmetrical corridor of interest rates on the NBR’s standing facilities around the policy rate, keeping it at plus/minus 1.50%. As a result, the interest rate on the NBR’s lending facility (Lombard) remains at 3.25% and the deposit facility rate remains at 0.25%. In addition, the Bank decided to maintain the minimum reserve requirement ratio on leu-denominated liabilities of credit institutions at 8.00% and the reserve requirement on foreign-currency-denominated liabilities at 12.00%.

The Central Bank stated that, as expected, “the annual inflation rate went deeper into negative territory in the first two months of this year,” largely as cuts in the value-added-tax that went into effect on 1 January have exerted additional downward pressures on prices. As for growth, the Bank noted that the economy accelerated in Q4, driven by solid private and public consumption, which more than offset disappointing performance in the external sector.

Going forward, the NBR expects that consumer prices will increase in annual terms starting in the second half of the year. Regarding economic growth, private consumption is expected to remain resilient thanks to fiscal easing measures and higher disposable income. The Central Bank pointed out “the persistence of risks associated with the domestic environment, due primarily to the expansionary impact of the fiscal and income policies in the context of the forthcoming elections”. Regarding the external environment, the Bank noted that the ongoing economic slowdown in China, divergent global monetary policies, escalating geopolitical tensions as well as financial market volatility have exacerbated economic risks and uncertainty.

To counter both external and internal risks, the NBR decided to keep the rate unchanged in order to, “pursue adequate liquidity management in the banking system, and to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.” The next monetary policy meeting is scheduled for 5 May.

FocusEconomics Consensus Forecast panelists expect the policy rate to end 2016 at 1.90%. For 2017, the panel foresees the rate closing the year at 2.65%.

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Romania Monetary Policy Chart

Romania Monetary Policy March 2016

Note: National Bank of Romania reference rate in %.
Source: National Bank of Romania

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