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Romania Monetary Policy February 2018

Romania: Central Bank raises rates again in February

At its monetary policy meeting on 7 February, the National Bank of Romania (NBR) decided to raise the policy rate to 2.25% from 2.00%—the second rate hike in as many months. Moreover, the Bank decided to increase the deposit facility rate from 1.00% to 1.25%, and it also raised the NBR lending facility (Lombard) rate from 3.00% to 3.25%. It left the reserve requirement on both leu- and foreign-currency denominated liabilities unchanged.

Building inflationary pressures, together with booming economic activity, underpinned the Bank’s decision. Inflation in December stepped up to a multi-year high of 3.3% from 3.2% in November, moving closer to the upper limit of the Bank’s target range of 1.5%–3.5%. Faster core inflation was behind the acceleration in headline inflation, which was also fueled by an increase in food and tobacco prices. Core inflation was again influenced by strong economic momentum, rising wages and supply-side factors.

Economic activity remained buoyant in Q4, as solid credit expansion continued to underpin the economy. Moreover, the combination of strong wage increases and tightening labor market conditions spurred household spending, as suggested by soaring retail sales throughout the quarter. In addition, a strong automotive sector boosted industrial production, which recorded two months of remarkable year-on-year growth, hinting at an extension in the recovery in fixed investment following a revival in Q3.

The NBR stated that risks to the outlook stem mainly from the fiscal and income policy stance, labor market conditions and the future evolution of administered prices. Moreover, the Bank also referred to the normalization cycle undertaken by major central banks, as well as to the risks to the outlook from volatility in financial markets. The communiqué did not provide guidance on the NBR’s next move, although the Bank stated it would stand ready to use all its available tools to secure price stability and sustainable economic growth.

The next monetary policy meeting is scheduled for 4 April 2018.

Romania Interest Rate Forecast

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