Romania: NBR stays put in August
August 5, 2019
On 5 August, 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’s decision to leave monetary parameters unchanged reflected the need to balance high inflation with a widening current account deficit. On the one hand, although inflation eased to 3.8% in June (May: 4.1%), which was slightly below expectations, it remained above the 1.5%–3.5% target band. On the other hand, a worsening current account deficit prompted the Bank to stay put, as expected capital inflows, following the looser monetary stance in the ECB, are projected to strengthen the leu, which will thus likely bruise exports in the process.
Looking ahead, the Bank expects inflation to remain above the target band for the remainder of the year, before settling in the upper bound within the forecast horizon. That said, risks to inflation stem from an uncertain fiscal policy and the evolution of the current account deficit, amid a slowing global economy. Moreover, the Bank noted that the impact the new benchmark index for loans to consumers (IRCC) will have on lending and the “monetary policy transmission mechanism” remains uncertain.
Policymakers will meet again on 3 October.
Author: Nicolás J. Aguilar, Economist