Romania: Central Bank leaves policy rate and reserve requirements unchanged in last meeting of the year
November 5, 2015
In the last scheduled monetary policy meeting of this year, which took place on 5 November, the National Bank of Romania (NBR) met market expectations in deciding to keep the monetary policy rate unchanged at 1.75%, where it has been resting since May. 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%.
The Central Bank stated that it took its decision against a background of increased uncertainty regarding Romania’s macroeconomic outlook. On the domestic side, the process of appointing a new parliament that will draft next year’s budget is fueling macroeconomic uncertainty. On the international stage, doubts regarding growth prospects for China and emerging markets, along with major Central Banks’ looming monetary policy decisions, are adding to uncertainties.
Regarding price developments, the Central Bank noted that consumer prices recorded a sizable drop in September, mainly owing to the impact of June’s cut in the Value Added Tax (VAT) on food items from 24.0% to 9.0% and falling oil and fuel prices. The Bank expects that consumer prices will continue to decrease in annual terms in the coming months. As for economic growth, the Bank pointed out that the economy slowed in Q2, but at the same time it emphasized that the domestic economy continued on a solid footing and that net exports improved compared to Q1. Adding to this, the NBR pointed out that wage dynamics and labor costs in the industrial sector have been on an upward trajectory recently. Moreover, the Bank assessed it positively that the share of local-currency-denominated loans in total loans exceeded that of foreign-currency-denominated loans for the first time in eight years, as this is supportive to financial stability. The next monetary policy meeting is scheduled for 7 January 2016.