Romania: NBR stands pat in November
November 6, 2019
On 6 November, 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.
Within-target inflation and robust economic activity both underpinned the Bank’s decision to stay put in November. Inflation landed on the upper bound of the 1.5%–3.5% target band in October amid slower price increases for food and fuels, although inflation is expected to end the year slightly above target. Meanwhile, the latest data for the third quarter is mixed: Although consumption dynamics appeared resilient, lackluster Eurozone demand has weighed on the industrial sector and risks widening the current account deficit.
Looking ahead, Governor Mugur Isarescu softened his hawkish tone and signaled that the current policy rate should be sufficient for inflation to converge in the upper bound of the target level, especially amid easing monetary conditions abroad. That said, risks to inflation stem from an uncertain fiscal policy on the heels of the 2019–2020 election calendar and the evolution of the current account deficit amid a slowing global economy.
With regards to the NBR latest decision, Ciprian Dascalu, Chief Economist at ING Romania, noted:
“We expect rates to stay flat until after the general election due in late 2020. Initial easing will come from loosening liquidity controls and maybe cuts in reserve requirement ratios before key rate cuts. The pace of future monetary policy easing is likely to be a function of the pace and credibility of the fiscal consolidation.”
Policymakers will meet again on 8 January 2020.
Author: Nicolás J. Aguilar, Economist