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Romania Monetary Policy May 2023

Romania: NBR keeps policy rate unchanged in May

At its 10 May meeting, the National Bank of Romania (NBR) left the policy rate unchanged at 7.00%. Additionally, the Bank left the deposit facility and the lending facility (Lombard) rates unchanged at 6.00% and 8.00%, respectively. The minimum reserve requirement was also left unchanged.

The NBR’s decision followed the slight deceleration of inflation in Q1 versus Q4 2022. Moreover, the NBR’s expectations of a subdued economy in Q1 and Q2 this year, the still-uncertain outcome of the Ukraine war, and risks associated with the banking turmoil in the U.S. and Switzerland likely contributed to its decision to hold fire amid heightened economic fragility.

While there was no explicit forward guidance, the Bank reiterated its expectation that inflation would decelerate into single digits in Q3 2023, driven by lower prices for some commodities, energy price caps and base effects. This indicates that any further tightening is unlikely; all but one of our panelists expect the NBR to leave the policy rate unchanged at 7.00% throughout 2023.

On the outlook, Vlad Ionita, analyst at Erste Group, commented:

“The ‘behavior of central banks in the region’ (read Poland) is ‘relevant’ in NBR policymaking. With large liquidity surplus in the Romanian money market, the relevant policy instrument is the deposit facility of 6.00%, which is below the Poland key rate of 6.75%. Hence, we expect NBR to lag NBP [Poland’s central bank] in cutting rates and pencil in first rate cut in Romania in 3Q24.”

The next monetary policy meeting is scheduled for 5 July.

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