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Romania Monetary Policy January 2019

Romania: Central Bank holds rates unchanged at its first 2019 meeting

At its first monetary policy meeting of the year, held on 8 January, the National Bank of Romania (NBR) kept the policy rate unchanged at 2.50%. The Bank also left the deposit facility rate unchanged at 1.50%, the lending facility (Lombard) rate at 3.50% and the reserve requirement on both leu- and foreign-currency denominated liabilities unaltered.

A notable moderation in both headline and core inflation, combined with softening growth, drove the NBR’s decision. Headline inflation dropped to 3.4% in November from October’s 4.3%, due to lower energy prices and favorable base effects, moving within the Bank’s target range of 1.5%–3.5% for the first time in 2018. Core inflation also eased slightly, again influenced by softer growth in international agri-food prices.

Meanwhile, national accounts for the third quarter showed that growth ticked up. However, the slight acceleration was the result of a surge in inventories, which came amid falling fixed investment, cooling consumer spending and a deterioration in the external sector. Available figures for Q4 suggest that economic activity slowed in the quarter, due to soft growth in industrial output and falling construction production; heading into 2019, the economy could be further weakened by capital outflows and companies revising capital investment plans following a series of tax increases adopted by the cabinet at the end of December.

The NBR expects inflation to decline further and thus remain below the upper band of the range in the next few months. The Bank stated that risks to the outlook stem mainly from the pace of growth in the EU and in the global economy, the government’s income and fiscal policy stance as well as the measures contained in the still pending 2019 budget. In its communiqué, the NBR noted that it will aim to secure price stability in the medium-term as a condition for sustainable economic growth, and once more called for structural reforms to improve the country’s macroeconomic fundamentals.

The next monetary policy meeting is scheduled for 7 February.

Romania Interest Rate Forecast

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