Central bank decided to increase the monetary policy rate to 5.50 percent


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The National Bank of Romania (NBR) Board decided with a majority of votes, i.e. 6 for and 3 against, to increase the monetary policy rate to 5.50 percent from 4.75 percent as well as to raise the lending (Lombard) facility rate to 6.50 percent from 5.75 percent and the deposit facility rate to 4.50 percent from 3.75 percent. Three members voted for a policy rate hike to 5.75 percent.

At the same time, the NBR Board unanimously decided to maintain firm control over money market liquidity. In addition, the NBR Board unanimously decided to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

Most of the Board members deemed that the reviewed context overall warranted a 0.75 percentage point increase in the monetary policy rate, so as to anchor inflation expectations over the medium term and to foster saving, with a view to bringing back the annual inflation rate in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, in a manner conducive to achieving sustainable economic growth. They underlined again the importance of the dosage of measures and of the calibration of the monetary policy conduct at the current juncture to avoid, as much as possible, a significant slowdown of economic growth, given also the major contractionary effects generated by the sizeable supply-side shocks, the energy crisis in particular, but also the requirement for fiscal consolidation progress.

A 1.00 percentage point rate hike was also discussed, the main reasons cited being the elevated annual inflation rate and the moderately upward revision of the anticipated inflation path, as well as the recent monetary policy decisions made by major central banks, alongside the calendar of monetary policy meetings of the NBR Board implying a relatively higher time lag between the current and the next policy meeting. Some members leaned towards that action.

The central bank representatives argued that the war in Ukraine and the associated sanctions further generated considerable uncertainties and risks to the outlook for economic activity, hence to medium-term inflation developments, through the possibly stronger effects exerted, via multiple channels, on consumer purchasing power and confidence, as well as on firms’ activity, profits and investment plans, but also by potentially affecting more severely the European/global economy and the risk perception towards economies in the region, with an unfavourable impact on financing costs.

Major uncertainties and risks were, however, associated with the fiscal policy stance as well, Board members agreed. They referred to the budget execution in 2022 H1 and the requirement for further fiscal consolidation amid the excessive deficit procedure and the overall tightening trend of financing conditions. At the same time, they highlighted primarily the current challenging economic and social environment domestically and globally, as well as the packages of support measures for households and firms, with potential adverse implications for budget parameters. From that perspective, the coordinates of the envisaged budgetary revision were particularly important.

More details here.

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