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Romania Monetary Policy May 2021

Romania: NBR holds fire in May

At its 12 May meeting, the National Bank of Romania (NBR) kept the policy rate at its record low of 1.25%. Moreover, the Bank maintained 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 stand pat was fueled by signs of an ongoing, albeit slowing, economic recovery, and came despite a significant upward revision to the Bank’s inflation expectations. Following a softer GDP contraction in Q4, available data suggests that the recovery carried over into the first quarter. However, the pace of recovery lost steam amid faltering construction and industrial activity, as well as a widening trade and current account deficit. On the price front, inflation accelerated to 3.2% in April (March: 3.1%) and price pressures are seen building further in the short term, owing to supply-side factors. Inflation is projected to land well above the upper bound of the Bank’s 1.5–3.5% target range in the second half of the year, before it returns to the upper end of the band at the beginning of 2022.

Looking ahead, the Bank’s communiqué did not include any strong forward guidance. That said, the Bank stressed that several uncertainties remain, including over vaccination progress and the course of the pandemic, the implementation of the government’s fiscal consolidation plan, the absorption of incoming EU funds and commodity price movements.

The next monetary policy meeting is scheduled for 7 July.

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