The Board of the National Bank of Romania decided to maintain the monetary policy rate at 7.00 percent per annum

By RBJ
In its meeting of 9 February 2023, the Board of the National Bank of Romania decided: >>> to keep the monetary policy rate at 7.00 percent per annum; >>> to leave unchanged the lending (Lombard) facility rate at 8.00 percent per annum and the deposit facility rate at 6.00 percent per annum; >>> 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 went down to 16.37 percent in December 2022 from 16.76 percent in November, remaining only marginally above the forecast, mainly as a result of lower fuel prices amid the decline in oil prices and the appreciation of the leu against the US dollar.
Consequently, in 2022 Q4, the annual inflation rate reached a plateau, in line with expectations, posting a much more subdued rise over the period than in the previous quarters (from 15.88 percent in September), given the stronger disinflationary impact from the aggregate dynamics of the exogenous CPI components, following the notable decline in fuel prices.
The annual adjusted CORE2 inflation rate saw a renewed, slight acceleration over the last months of 2022, contrary to forecasts, rising from 11.9 percent in September to 14.6 percent in December 2022, against the background of the continued advance in processed food prices, but also of almost across-the-board price increases in non-food and services segments. The evolution of adjusted CORE2 inflation continues to reflect the effects of large hikes in agri-food commodity prices and energy and transport costs, alongside the influences of bottlenecks in production chains. These were compounded, during this period too, by high short-term inflation expectations and the resilience of demand in certain segments, as well as by the significant share of food items and imported goods in the CPI basket.
The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) moved up to 14.1 percent in December 2022 from 13.4 percent in September. Furthermore, the average annual CPI inflation rate and the average HICP inflation rate went up to 13.8 percent and 12.0 percent respectively in December 2022 from 11.8 percent and 10.2 percent respectively in September 2022, remaining however below the levels prevailing in the region and the Baltic countries.
The new statistical data reconfirm the significantly stronger-than-expected economic growth in 2022 Q3, at a pace similar to that in the previous three months, i.e. 1.2 percent, implying a pick-up in the aggregate demand surplus during this period too.
Annual GDP growth continued to decelerate in 2022 Q3 – to 3.8 percent from 5.1 percent in Q2 –, although remaining significant from a historical perspective, mainly on the back of gross fixed capital formation this time round, way ahead of the contribution from household consumption. By contrast, the contribution of net exports strongly re-entered negative territory in Q3, given that the annual growth rate of imports of goods and services exceeded notably that of exports thereof in terms of volume. Against this background, the growth rate of the trade deficit accelerated considerably versus the same year-earlier period, despite the narrowing of the unfavourable differential between the lower annual change in import prices and that in export prices, whereas the annual dynamics of the current account deficit doubled, inter alia as a result of the strong worsening in the dynamics of the primary income balance.
The latest data and analyses point to a gradual slowdown in economic growth in 2022 Q4 and 2023 Q1, under the impact of the protracted war in Ukraine and the extension of the associated sanctions, but also a mild advance in GDP growth in 2022 Q4 compared to the same period of 2021 amid a base effect.
Relevant from this perspective is the acceleration seen in October-November 2022 by the growth rate of retail trade and motor vehicles and motorcycles sales, but especially by that of services to households, alongside the further strong step-up in the volume of construction works. In the first two months of 2022 Q4, industrial output saw, however, its contraction in annual terms re-widen, whereas exports of goods and services recorded a considerable drop in their annual change, much more pronounced than that of imports, inter alia in the context of the deteriorating terms of trade, which triggered an acceleration in the annual increase in trade and current account deficits. Yet, the dynamics of the latter reflected also the influences of rising inflows of EU funds to the current account, largely offset however by a worsening of developments in the primary income segment.