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Romania Monetary Policy October 2018

Romania: Central Bank holds fire at October meeting

At its monetary policy meeting on 3 October, the National Bank of Romania (NBR) decided to keep the policy rate unchanged at 2.50%. Moreover, the Bank decided to leave the deposit facility rate unchanged at 1.50% and the lending facility (Lombard) rate at 3.50%. Meanwhile, the reserve requirement on both leu- and foreign-currency denominated liabilities was left unaltered.

Some easing in headline CPI, moderating core inflation and a notable weakening in growth were behind the NBR’s decision. Headline inflation dropped from 5.4% in June to 4.6% in July, although it rebounded to 5.1% in August. Despite the modest deceleration—largely due to slower growth in administered and fuel prices—inflation remained well above the upper band of the Bank’s target range of 1.5%–3.5%, where it has been for eight consecutive months. Meanwhile, core inflation inched down in August, again influenced by softer growth in international food prices. Recently-released data on Q2 shows that the economy shifted into a lower gear since the beginning of the year, while the increase in unit labor costs eased somewhat. However, available figures on industrial production and credit extension for the third quarter suggest momentum could have regained some strength.

The NBR expects inflation to stay above its target range in the coming months then decline to near the upper band of the range by the end of the year. The Bank reaffirmed that risks to the outlook stem mainly from administered prices, future wage dynamics and the fiscal stance pursued by the government. The monetary policy stance of the European Central Bank will also play a role. As in the previous communiqué, the NBR declared it will secure price stability, which it sees as a condition for sustainable economic growth and called for structural reforms to strengthen the country’s productive capacity and achieve sustainable growth.

The next monetary policy meeting is scheduled for 6 November.

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