In its meeting of July 4, 2018, the Board of the National Bank of Romania (BNR) has decided on Wednesday to keep the monetary policy rate at 2.50 percent per annum and to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending facility rate at 3.50 percent per annum.
It has also decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions, a release posted on the BNR website reads.
The annual CPI inflation rate rose to 5.22 percent in April and 5.41 percent in May (from 4.95 percent in March), thereby standing above the projected level. Behind this development stood supply-side factors, the larger-than-expected hikes in fuel prices and tobacco product prices in particular.
The annual adjusted CORE2 inflation rate (which excludes from the CPI inflation a number of prices on which monetary policy has limited or no influence, i.e. administered prices, volatile prices, and tobacco and alcoholic beverage prices) fell, however, in May to 2.95 percent, from 3.09 percent in April, sliding below the March reading of 3.05 percent. The slowdown can be ascribed to processed food and services components, under the impact of slacker growth in international prices of some agri-food items and the movements in the EUR/RON exchange rate.
In April, the average annual CPI inflation rate stood at 2.8 percent and in May at 3.3 percent, compared with 2.5 percent in March; calculated based on the Harmonised Index of Consumer Prices, the annual average came in at 2.2 percent in April and at 2.6 percent in May, from 1.9 percent in March, the release further reads.
Data on first-quarter economic growth point to a sharper-than-anticipated loss of momentum, with annual GDP dynamics slowing to 4 percent, from 6.7 percent in the final quarter of 2017. Household consumption was further the chief driver of growth, its contribution, however, shrinking considerably. Gross fixed capital formation continued to have a positive contribution, albeit lower from the previous period. By contrast, the contribution of net exports to the advance in real GDP improved, given the narrowing of the positive differential between the annual growth rate of imports and that of exports. Against this background, the current account deficit posted a slower pace of increase against the same year-ago period, while remaining at an elevated level.
(…) The annual growth rate of credit to the private sector remained robust in Q2 (6.8 percent in April and 6.4 percent in May), outpacing the average dynamics recorded in the previous quarter. The stronger momentum was mainly attributable to the firming of the high dynamics of leu-denominated loans to households, driven by consumer credit, whose flow peaked at a historical high. The domestic currency component further widened its share in total credit to 64.7 percent, against a low of 35.6 percent in 2012.
The latest assessments reconfirm the outlook for the annual inflation rate to level off above the variation band of the target over the next months, followed by its decline near the upper bound of the variation band at the end of this year, in line with the May 2018 medium-term forecast.
The uncertainties and risks surrounding the medium-term inflation outlook are significant. They stem from labour market conditions, developments in administered prices and in oil prices, as well as from international financial market volatility. Also relevant are the economic growth pace in the euro area and globally and the danger of escalating trade protectionism.
Based on the currently available data and with a view to ensuring the adequate dosage and pace of adjustment of the monetary policy stance, the Board of the National Bank of Romania decided to keep unchanged the monetary policy rate at 2.50 percent per annum; moreover, the BNR Board decided to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending (Lombard) facility rate at 3.50 percent per annum. In addition, the BNR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
(…) The next monetary policy meeting of the BNR Board is scheduled for 6 August 2018, when a new quarterly Inflation Report is to be examined.