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Romania Monetary Policy May 2019

Romania: NBR stays put despite new hawkish tilt

On 15 May, 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. Most analysts had expected as much.

Policymakers were reluctant to hike rates despite higher inflation in recent months (April: 4.1%). Despite rising headline and core measures, they felt no urgency to act given that, in their view, the recent spike has been due to a number of transitory factors. In the NBR’s accompanying inflation report, policymakers projected that headline inflation would remain outside its 1.5%–3.5% target band through the end of the year before settling somewhere within it next year.

Governor Mugur Isarescu voiced hawkishness and noted that monetary tightening would soon be on the horizon. He noted, however, that the NBR’s preferred tool to implement it would be liquidity management rather than rate hikes. Although this would minimize the NBR’s spread with the European Central Bank, analysts were skeptical that it would be sufficient to contain inflation over the short-term—especially given the government’s loose fiscal policy.

Policymakers will meet again on 4 July.

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