Romania: Central Bank maintains policy rate and reserve requirement as expected in September
September 30, 2015
At its 30 September meeting, the National Bank of Romania (NBR) decided to keep the monetary policy rate unchanged at 1.75% for a third consecutive meeting. The NBR ended its easing cycle in July after cutting the policy rate by 150 basis points over the course of 10 months. September’s decision met market expectations. 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 pointed out that consumer prices continued to fall in annual terms due to lower food and fuel prices. The Bank specified that the steep decreases in prices that have been observed since June largely resulted from June’s cut in the value-added-tax (VAT) on food items from 24% to 9%. In the Bank’s view, there will be disinflationary pressures in the short term due to the aforementioned cut to the VAT on food, along with low oil prices and the additional fiscal easing envisaged for 2016. Nevertheless, the Bank emphasized that, “these effects might mask the build-up of medium-term inflationary pressures,” as the new Fiscal Code is likely to stimulate consumption going forward and public sector wage increases are planned.
According to the Bank, economic growth slowed in Q2, which partially resulted from weaker agricultural output, but GDP growth is expected to accelerate going forward on the back of household spending and investment. As for the international environment, the Bank pointed out that uncertainty in global financial markets has moderated slightly of late, but that it still persists due to subdued global growth and volatility in emerging economies. The next monetary policy meeting is scheduled for 5 November.