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Romania Monetary Policy March 2021

Romania: NBR holds fire in March

In an unscheduled meeting held on 15 March, the National Bank of Romania (NBR) maintained the policy rate at its record low of 1.25%. Moreover, the Bank kept the deposit facility rate at 0.75% and the lending facility (Lombard) rate at 1.75%. Lastly, it left the reserve requirement ratios for both FX- and leu-denominated liabilities of credit institutions unchanged at 5.00% and 8.00%, respectively.

The Bank’s decision to hold fire was underpinned by better-than-expected domestic macroeconomic developments and came despite an upward revision to the Bank’s inflation outlook. GDP contracted at a notably softer pace in Q4 2020—surprising on the upside—on the back of stronger domestic demand, hinting at an ongoing recovery. On the price front, inflation spiked in January and reached an over one-year high in February, owing to the liberalization of the electricity market and higher oil prices. This, coupled with rising supply-side pressures for agricultural commodities and a change in the output gap pattern, led the Bank to revise its inflation outlook significantly upwards. It now sees inflation steadily rising in 2021 and coming close to the upper band of its 1.5–3.5% target range, before easing and ending 2022 slightly above the midpoint of the target band.

Looking ahead, the Bank’s communiqué did not include any strong forward guidance. It did, however, stress that uncertainty surrounding the evolution of the health crisis and the speed of the vaccine rollout, as well as the government’s fiscal policy stance, remains elevated. The majority of our panelists expect the Bank to stand pat for the remainder of 2021.

The next monetary policy meeting is scheduled for 12 May.

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