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Romania Monetary Policy January 2020

Romania: NBR holds its ground at the start of the year

On 8 January, the National Bank of Romania (NBR) kept the policy rate unchanged at 2.50%, while also leaving the deposit facility rate at 1.50%, the lending facility (Lombard) rate at 3.50% and maintaining the reserve requirements on both leu- and foreign currency-denominated liabilities. The decision was in line with analysts’ expectations.

The Bank decided to stay put in January as it balanced out strengthening price pressures and a weaker economic performance, and with an eye on the ECB’s stance. Inflation landed above the upper bound of the 1.5%–3.5% target band in November, partly due to higher global agri-food commodity prices, although it is expected to soften somewhat going forward. Meanwhile, following a marked slowdown in Q3, available data for the fourth quarter points to protracted economic slack: Although consumption dynamics appeared resilient in October-November, a sharp contraction in industrial output in October shows lackluster Eurozone demand continued to weigh on the industrial sector, and risks widening the current account deficit.

Looking ahead, the Bank signaled that the current policy rate should be sufficient for inflation to converge to the upper bound of the target level amid loose monetary conditions abroad. That said, risks to inflation stem from uncertain fiscal and income policies ahead of this year’s general election and the evolution of the current account deficit amid a slowing global economy.

Commenting on the likely evolution of the monetary policy stance ahead, Valentin Tataru, economist for Romania at ING, stated:

“We believe that after today’s meeting it become clearer that the next policy move of any kind will be towards easing. We continue to see rates flat until after the general elections due late 2020, with the pace of any easing highly dependent on the pace and credibility of the fiscal consolidation.”

Policymakers will meet again on 7 February.

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