Romania: Central Bank keeps monetary policy rate unchanged at July meeting
July 3, 2017
At its policy meeting on 3 July, the National Bank of Romania (NBR) met market expectations by deciding to keep the monetary policy rate unchanged at 1.75%, where it has been since May 2015. The Bank also left the reserve requirement on both leu- and foreign currency-denominated liabilities unchanged, both of which are decisions that analysts had predicted.
Although inflation has finally returned after a period of declining prices, it remains close to zero and far below the Bank’s 2.5% target, even though the economy grew strong in the first quarter of 2017. The Bank thus kept the monetary policy rate unchanged in order to encourage prices to continue to rise moderately over the medium-term and guarantee adequate financing to the banking system, so that it might continue to support growth.
The statement did not provide strong forward guidance. The NBR expects inflation to rise moderately in the near future, mainly due to the likely evolution of fiscal and income policies as well as owing to expected adjustments in administered prices. This matches FocusEconomics analysts’ predictions of gradually rising inflation, with the policy rate likely to rise gradually too in order to keep price pressures in check.
Author: Christopher Mc Innes, Economist