Romania: Central Bank leaves policy rate unchanged in first meeting of the year
February 5, 2016
In its policy meeting on 5 February, 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 2015. 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 the reserve requirement on foreign-currency-denominated liabilities at 12.00%.
The Central Bank stated that, as expected, “inflation remained in negative territory at the end of 2015,” largely reflecting the impact of June’s cut in the VAT on food items. However, the Bank added that the annual drop in consumer prices softened in recent months, mainly due to higher prices for fuel and tobacco as well as a weaker currency and less spare capacity in the economy. In the Bank’s view, without the food VAT cut in June 2015, inflation would have been within the Bank’s target range of 2.5% plus/minus 1.0 percentage points last year. As for growth, the Bank noted that the economy accelerated in Q3, mainly on the back of strong consumption and, to a lesser extent, exports.
Going forward, the NBR expects that the annual drop in consumer prices will steepen in the first half of this year, reflecting January’s cut in the general VAT along with several other tax cuts. Inflation is expected to return within the target range only at the outset of 2017. According to the Central Bank, uncertainties for the inflation outlook mainly come from developments within Romania. Particularly, NBR pointed to the following aspects, “uncertainty about the fiscal and income policies, as well as about the implementation of structural reforms, in the context of the elections scheduled to take place this year and in the absence of agreements with international financial institutions.” The next monetary policy meeting is scheduled for 31 March.