Romania Monetary Policy May 2020

Romania

Romania: NBR cuts rates in unscheduled meeting in May

May 29, 2020

In an unscheduled meeting held on 29 May, the National Bank of Romania (NBR) cut the policy rate by 25 basis points to 1.75% and the lending facility (Lombard) rate by 25 basis points to 2.25%. Moreover, it also lowered the deposit facility rate to 1.25% from 1.50%, 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 deteriorating and highly uncertain economic backdrop as the Covid-19 pandemic wreaks havoc on the economy, which saw GDP growth slow to 2.4% in the first quarter—a near six-year low. Meanwhile, inflation dropped to 2.7% in April from 3.1% in March due to the collapse in global oil prices and disinflationary base effects. The Bank stated that it sees inflation rising again, reaching the upper band of its 2.5% plus or minus 1.0 percentage point corridor, in the second half of the year, before stabilizing around the midpoint of the target at the end of the forecast horizon. However, it noted that the uncertainty regarding the outlook is exceptionally high.

On 5 June, the ECB agreed to set up a repo line arrangement with the NBR of up to EUR 4.5 billion in order to provide the Bank with euro liquidity to deal with possible market dysfunctions due to the coronavirus shock. The repo line will be in place until 31 December this 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. In this context, it reiterated that monetary policy meetings will be held whenever necessary.

FocusEconomics Consensus Forecast analysts estimate the policy rate will end 2020 and 2021 at 1.70% and 1.85%, respectively.


Author:, 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 June 20 20 1

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


Romania Economic News

More news

Search form