Romania Monetary Policy January 2017

Romania

Romania: Central Bank raises rates at its first meeting of 2018

January 8, 2018

At its monetary policy meeting on 8 January, the National Bank of Romania (NBR) decided to raise the policy rate to 2.00% from 1.75%, where it had been since May 2015. The NBR left the reserve requirement on both leu- and foreign- currency denominated liabilities unchanged. Moreover, the Bank decided to increase the deposit facility rate from 0.75% to 1.00%, and it also raised the NBR lending facility (Lombard) rate from 2.75% to 3.00%.

Rising inflationary pressures amid buoyant economic activity underpinned the Bank’s decision. Inflation in November stepped up to 3.2% from 2.6% in October, approaching the upper band of the Bank’s target range of 1.5%–3.5%. Inflation was fueled by broad-based increases in prices, as nearly all CPI components contributed to the acceleration. Moreover, core inflation also increased considerably, influenced by strong economic momentum, some weakness in the currency and rising wages. As price pressures derived mainly from strong fundamentals and supply-side factors, the Bank expects they will not be temporary.

Annual GDP growth accelerated in Q3 mainly on the back of surging household spending and a jump in fixed investment. Solid private consumption was buttressed by tightening labor market conditions and strong wage increases. Domestic demand was also spurred by a revival in fixed investment; it soared in Q3 thanks to increased equipment purchases, although the absorption of EU funds fell short of expectations. Moreover, available figures for Q4 point to healthy growth: In October, annual growth in industrial production came in at a double-digit rate; the unemployment rate fell further; and retail sales expanded strongly, suggesting consumer spending remained solid in the last quarter of 2017.

The NBR stated that risks to the outlook stem mainly from the fiscal and income policy stance, the future evolution of oil prices and the EU and global pace of growth. Moreover, the Bank also referred to the normalization cycle undertaken by major central banks. It did not provide clear forward guidance in its communiqué, although it declared it would stand ready to use all its available tools to secure price stability as a condition for sustainable economic growth.

The next monetary policy meeting is scheduled for 7 February 2018.

FocusEconomics Consensus Forecast panelists expect the policy rate to end 2018 at 2.88%. For 2019, the panel sees the rate closing the year at 3.53%.


Author: Massimo Bassetti, Economist

Sample Report

Looking for forecasts related to Monetary Policy in Romania? Download a sample report now.

Download

Romania Monetary Policy Chart


Romania Monetary Policy January 2018

Note: National Bank of Romania reference rate in %.
Source: National Bank of Romania


Romania Economic News

More news

Search form