BNR monetary policy meeting – economic growth in 2017, up faster than anticipated, to slow down in 2018 and lose momentum in 2019

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According to the minutes of the monetary policy meeting of the National Bank of Romania Board on November 7, 2017 the Board discussed and adopted the monetary policy decision, based on the data and analyses on the recent characteristics and the updated medium-term forecast of macroeconomic developments submitted by the specialised departments, as well as on other available domestic and external information.

Board members remarked that economic growth in 2017 was expected to accelerate markedly faster than previously anticipated, before slowing down more steeply in 2018 and losing momentum moderately in 2019, its forecasted dynamics remaining above the potential GDP growth rate in 2018, but thereafter dropping to a slightly lower value. It was shown that the outlook relied on the expansionary nature of fiscal and income policies probably persisting into 2018, albeit gradually abating from 2016. It also implied monetary conditions would see a progressive reduction in their degree of accommodation against 2017, as well as the EU funds absorption would improve and euro area/EU and global economies would expand at a relatively more robust pace over the short term, the BNR informs in a release posted on its website.

Board members first examined the recent inflation developments. They observed that the annual inflation rate had leapt to 1.77 percent in September from 1.15 percent in August, returning more deeply than anticipated into the variation band of the flat target. It was noted that the annual inflation rate had posted a faster-than-forecasted rise during Q3 too, and that, in the absence of all changes in indirect taxes, excise duties and non-tax fees and charges, it would have stood at 2.6 percent in September, marginally above the midpoint of the flat target. The upward movement in that period had been primarily driven by the increase in electricity price, to which had added the pick-up in fuel prices – amid the hike in the excise duty on motor fuels and in the international oil prices –, as well as the acceleration in core inflation; their impact had been only marginally offset by that of the decrease in the annual change of VFE prices and by the base effect associated with developments in tobacco product prices.

Looking at labour market developments, Board members underlined the record high posted in August for the fourth successive month by the number of employees economy-wide, as well as the steepening downward trend in its annual growth rate, showing a potential decrease in the room for employment to grow and increased obstacles to recruitment faced by firms. The new decline in the unemployment rate to 5.0 percent in September was also referred to. Those developments, corroborated by the relative increase in employment intentions in the last months of the current year, as well as by higher difficulties in recruiting skilled labour, as revealed by specialised surveys, were deemed to indicate further labour market tightening.

The BNR Board decided with a majority of votes – 8 votes for, 1 vote against – to narrow the symmetrical corridor of interest rates on the BNR’s standing facilities around the policy rate to ±1 percentage points from ±1.25 percentage points and, unanimously, to ensure firm liquidity management in the banking system. Moreover, the Board decided with a majority of votes – 8 votes for, 1 vote against – to keep unchanged the monetary policy rate at 1.75 percent per annum and, unanimously, to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions, the release concludes.


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