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Romania Monetary Policy February 2020

Romania: NBR stands pat in February

On 7 February, the National Bank of Romania (NBR) kept the policy rate unchanged at 2.50%, while also leaving the deposit facility rate at 1.50% and the lending facility (Lombard) rate at 3.50%. In addition, the Bank maintained banks’ reserve requirements on leu-denominated liabilities at 8.00%; however, it cut reserve requirements on foreign currency-denominated liabilities from 8.00% to 6.00% starting with the 24 February–23 March maintenance period.

The Central Bank decided to remain on hold as it sought to strike a balance between increased price pressures and moderating economic activity. Inflation climbed further above the 1.5%–3.5% target band in December to 4.0% (November: 3.8%), which was slightly higher than projected by the Bank. That said, the NBR expects it to ease in the months ahead and stay in the upper half of the band through the end of its forecast horizon. Regarding activity, although consumption dynamics appear healthy overall, plunging industrial output in October–November and a widening current account deficit remained sources of concern for the monetary authority.

Looking ahead, considering that its new inflation report largely retains the previous medium-term projections, the Bank signaled that the current stance should be enough to bring inflation back to within its tolerance range. However, it did note that uncertainties and upward risks to the inflation outlook linger regarding how fiscal and income policies will evolve in the run-up to this year’s general election. It also flagged the trajectory of the current account deficit and softening economic dynamics abroad as additional risks.

Policymakers will meet again on 3 April.

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