The Board of the National Bank of Romania, having convened for the meeting of 5 April 2022, decided: >>> to increase the monetary policy rate to 3.00 percent per annum, from 2.50 percent per annum, as of 6 April 2022; >>> to raise the lending (Lombard) facility rate to 4.00 percent per annum from 3.50 percent per annum and the deposit facility rate to 2.00 percent per annum from 1.50 percent per annum, as of 6 April 2022; >>> to maintain firm control over money market liquidity; >>> to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The annual inflation rate continued to rise gradually in the first two months of 2022, contrary to expectations, climbing to 8.35 percent in January and to 8.53 percent in February, from 8.19 percent in December 2021. This time round, the exogenous CPI components had a disinflationary contribution overall, following the slower pace of increase of electricity and natural gas prices, amid a base effect and extended price capping schemes, which outweighed considerably the influences of the relatively more pronounced hike in fuel prices, VFE prices and administered prices.
The annual adjusted CORE2 inflation rate followed a faster-than-expected upward path in the first two months of 2022 Q1, going up to 5.2 percent in January and to 5.9 percent in February, from 4.7 percent in December 2021, mainly as a result of the step-up in broad-based increases in processed food prices. Therefore, the evolution of this component continues to reflect the effects of the surge in agri-food commodity prices and energy and transport costs, alongside the influences of persistent bottlenecks in production and supply chains, compounded by increasingly higher short-term inflation expectations, the resilience of demand in certain segments, as well as by the significant share of food items and imported goods in the CPI basket.
Average annual CPI inflation rate and average annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) went up to 6.0 percent and 5.0 percent respectively in February 2022, from 5.0 percent and 4.1 percent respectively in December 2021.
Economic activity continued to weaken more than expected in 2021 Q4, falling by 0.1 percent versus the previous quarter, but solely on the back of the marked deterioration in the performance of agriculture. The developments make it likely for excess aggregate demand to remain low during this period, in line with February expectations, given inter alia the implications of the new revision of statistical data on economic growth in 2020 and 2021.
At the same time, annual GDP dynamics saw in 2021 Q4 a markedly stronger-than-anticipated decline, i.e. to 2.4 percent from 6.9 percent in Q3, but almost entirely on the back of the contribution of the change in inventories falling to a significant negative value. Household consumption made only a very slightly lower positive contribution – which thus remained particularly elevated –, while gross fixed capital formation recorded a somewhat improved contribution.
In turn, net exports made a slightly lower negative contribution to annual GDP dynamics, as the decrease in the change in imports of goods and services outpaced that of exports. Against this background, the annual increase in the negative trade balance decelerated considerably as against Q3, due also to the narrowing of the unfavourable differential between the dynamics of import prices and those of export prices. Conversely, the current account deficit widened in annual terms at a significantly faster pace, under the impact of the marked worsening of the secondary income balance, on account of a decrease in inflows of EU funds to the current account as compared to the same year-earlier period.
Recent developments in high-frequency indicators point to a slight, probably temporary, recovery in economic activity in 2022 Q1, implying however the deceleration in annual GDP growth in this period as well, due to an ongoing base effect.