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BNR maintains the monetary policy rate at 2.5pc

In its meeting of October 3, 2018, the Board of the National Bank of Romania decided to keep the monetary policy rate at 2.50 percent per annum; to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending facility rate at 3.50 percent per annum and to maintain the existing levels of minimum reserve requirement ratios on both RON – and foreign currency-denominated liabilities of credit institutions, a release posted on the BNR website reads.

The developments in the annual CPI inflation rate over the first two months of Q3 overall were in line with expectations. In July, the indicator fell to 4.56 percent from 5.4 percent in the previous month, subsequently reaching 5.06 percent in August. The evolution versus June owed to supply-side factors and to some base effects, with the main influences being attributable to the slowdown in the growth rate of administered prices and fuel prices. The faster annual increase in vegetable and fruit prices acted in the opposite direction, the release reads.

The annual adjusted CORE 2 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 product and alcoholic beverage prices) continued to fall slightly, down to 2.8 percent in August, after having remained flat at 2.9 percent in July. The decline was further induced by processed food and services, mainly under the influence of the dynamics of international prices of some agri-food items and given the movements in the EUR/RON exchange rate.

The average annual CPI inflation rate reached 3.9 percent in July and 4.2 percent in August against 3.6 percent in June; calculated based on the Harmonised Index of Consumer Prices, the average annual rate came in at 3.2 percent in July and 3.5 percent in August versus 2.9 percent in June.

Provisional data on economic growth in 2018 Q2 point to its slightly regaining momentum, in annual terms, to 4.1 percent from 4.0 percent in the previous quarter. Household consumption continued to be the main driver of GDP growth, closely followed by the change in inventories, whereas the contribution of gross fixed capital formation turned negative again. The contribution of net exports to the advance in GDP was further negative, but improved slightly against the previous quarter, as the growth rate of imports posted a more visible deceleration than that of exports.

(…) The relevant interbank money market rates saw their positive spread vis-à-vis the monetary policy rate narrow gradually over the past two months. The EUR/RON exchange rate remained relatively stable.

The robust growth of credit to the private sector extended into July and August, at a pace of 6.6 percent, with the share of the leu-denominated component in total private sector credit reaching 65.3 percent (from a 35.6 percent low in May 2012). In turn, the share of loans to households peaked in August at a new historical high of 53.2 percent of total private sector credit.

The latest assessments reconfirm the outlook for the annual inflation rate to decline further towards the upper bound of the variation band of the target at the end of this year, in line with the August 2018 medium-term forecast.

The uncertainties and risks surrounding the inflation outlook stem mainly from developments in the prices of some food items, in administered prices (natural gas and electricity) and fuel prices, as well as from labour market conditions and the fiscal policy stance. Also relevant are the pace of global economic growth amid protectionist trends, the outlook for the economy and inflation in the euro area and the EU and hence the monetary policy stance of the ECB and of central banks in the region.

Based on the currently available data, the Board of the National Bank of Romania decided to keep unchanged the monetary policy rate at 2.50 percent per annum; moreover, the NBR 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 NBR Board decided to maintain the existing levels of minimum reserve requirement ratios on both RON – and foreign currency-denominated liabilities of credit institutions, the release reads.

 

About Valeriu Lazar