Romania Monetary Policy August 2020

Romania

Romania: NBR cuts rates in August

August 5, 2020

In a meeting held on 5 August, the National Bank of Romania (NBR) cut the policy rate by 25 basis points to 1.50% and the lending facility (Lombard) rate by 25 basis points to 2.00%. Moreover, it lowered the deposit facility rate to 1.00% from 1.25%, while pledging to maintain secondary market debt purchases and repo transactions in order to continue to ensure sufficient liquidity in the economy.

The decision came against a challenging and highly uncertain economic backdrop. The Covid-19 pandemic wreaked havoc on the economy in H1, although activity likely bottomed out in April, providing some hopes for a recovery ahead. Meanwhile, after moderating in May, inflation picked up in June amid recovering global oil prices, while core inflationary pressures were sustained throughout H1. The Bank stated that it sees inflation remaining largely stable within the upper band of its 2.5% plus or minus 1.0 percentage point corridor in the second half of the year.

In terms of forward guidance, the Bank remained cautious and acknowledged a high degree of uncertainty surrounding both the inflation outlook due to the shock from the Covid-19-induced lockdowns, and the resulting changes in consumer behavior, as well as the trajectory of the economy amid the lifting of restrictions and possible flare-ups of the pandemic.

FocusEconomics Consensus Forecast analysts estimate the policy rate will end 2020 and 2021 at 1.55% and 1.57%, respectively.


Author: Massimo Bassetti, Senior Economist

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Romania Monetary Policy August 20 20 0

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


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