Romania Monetary Policy August 2018

Romania

Romania: Central Bank holds rates unchanged at August meeting

August 6, 2018

At its monetary policy meeting on 6 August, 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.

Moderating core inflation and a significant deceleration in growth underpinned the NBR’s decision. Headline inflation stabilized in June at 5.4%, remaining well above the upper band of the Bank’s target range of 1.5%–3.5%, where it has been for six consecutive months. However, core inflation eased slightly, influenced by softer growth in international food prices. Moreover, figures on industrial and construction production, along with retail sales for the second quarter, suggest that economic growth has settled into a slower pace since the beginning of the year. As domestic demand cooled, the Bank assumes prices will be subject to more moderate inflationary pressures.

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 stated that risks to the outlook stem mainly from administered prices, future wage dynamics and the fiscal stance pursued by the government. In its 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 3 October.

Romania Interest Rate Forecast


FocusEconomics Consensus Forecast panelists expect the policy rate to end 2018 at 2.88%. For 2019, the panel sees the rate closing the year at 3.53%.


Author: Massimo Bassetti, Economist

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