Romania: Central Bank keeps policy rate and reserve requirement unchanged in July
July 1, 2015
At its 1 July meeting, the National Bank of Romania (NBR) decided to keep the monetary policy rate unchanged at 1.75%. The Bank’s decision came as a surprise to market analysts who had expected that the Bank would cut the rate once again. In addition, the Bank did not change the symmetrical corridor of interest rates on the NBR’s standing facilities around the policy rate and kept 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 kept the reserve requirement on foreign-currency-denominated liabilities at 14.00%.
In the accompanying statement, the NBR pointed out that economic growth was strong and that it had sped up markedly in the first quarter of this year, boosted by consumption and investment. At the same time, the Bank said that inflation remained below its inflation target range and is projected, “to enter and remain in negative territory over the short term,” resulting from the reduction in the value-added tax on food items that became effective in June, a narrowing output gap and increasing labor costs. According to the Bank, leu-denominated loans have grown at a faster pace recently, partly due to the Central Bank’s monetary policy easing in recent months. Conversely, forex loans continued to decrease with their share in total private sector credit dropping to 54%, the lowest level since 2007. The Bank sees this as beneficial for financial stability. Regarding the exchange rate, the Bank noted that the leu recently recorded larger fluctuations, reflecting concerns over the Greek crisis and volatility in financial markets. The NBR added that, “all these, combined with the current state of affairs, i.e. the situation in Greece, uncertainty surrounding Romania’s agreements with international institutions and the divergence between the monetary policy stances of major central banks worldwide, call for a prudent reconsideration of the monetary policy cycle.” The next monetary policy meeting is scheduled for 4 August.