The National Bank of Romania has been maintaining the level of the monetary policy rate at 7% per year for over a year

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Bucharest, May 13, 2024RBJ – The Board of Directors of the National Bank of Romania decided, on Monday, to maintain the monetary policy rate at the level of 7% per year, the central bank informs in a press release.

“In today’s meeting, May 13, 2024, based on the evaluations and data available at this moment, as well as in the conditions of high uncertainties, the Board of Directors of the BNR decided to maintain the monetary policy interest rate at the level of 7% per year. At the same time , it was decided to maintain the interest rate for the lending facility (Lombard) at 8% per annum and the interest rate for the deposit facility at 6% per annum. The Board of Directors of the NBR also decided to maintain the current levels of the mandatory minimum reserve rates for liabilities in lei and in foreign currency of credit institutions”, the press release states.

The decisions of the CA of the NBR aim to bring the annual inflation rate back in line with the stationary target of 2.5%, +/- one percentage point, including by anchoring inflation expectations in the medium term, in a way that contributes to achieving an increase sustainable economies. In the current context, the balanced mix of macroeconomic policies and the implementation of structural reforms including the use of European funds to stimulate long-term growth potential are essential for maintaining macroeconomic stability and strengthening the capacity of the Romanian economy to face adverse developments.

Inflation in 2024 – above forecasts

The annual inflation rate is expected to be above the previously forecast value in December 2024 and to fall only marginally within the target range at the end of the forecast horizon (March 2026), according to the National Bank of Romania.

“In today’s meeting (Monday – n.r.), the Board of Directors of the NBR analyzed and approved the Inflation Report, May 2024 edition, a document that incorporates the most recent data and information available. The updated forecast reveals the prospect of the continued decrease in the annual rate of inflation – over the next eight quarters at a much slower pace compared to 2023 and on a slightly higher short-term trajectory than the one highlighted in the previous projection. Thus, the annual inflation rate is expected to be above the previously forecast value in December 2024 and to decrease only marginally within the target range at the end of the forecast horizon (March 2026)”, the central bank said in a press release.

According to the cited source, the decrease will be driven mainly by basic disinflationary effects and downward corrections of commodity prices, whose disinflationary action will weaken progressively and more pronounced in the short term than previously anticipated.

These are joined by the influences expected to come from the deceleration of the increase in import prices and the gradual decrease of short-term inflationary expectations, as well as from the very slow narrowing of the aggregate demand surplus over the next two years, in line with the previous forecasts.

BNR representatives emphasize that uncertainties and increased risks are associated with the conduct of fiscal and revenue policy, considering, on the one hand, the budget execution in the first three months of the year, the dynamics of salaries in the public sector and the full impact of the new Pension Law, and , on the other hand, the additional fiscal-budgetary measures that could be implemented in the future in order to continue the budgetary consolidation, including in the context of the excessive deficit procedure and the conditionalities attached to other agreements concluded with the European Commission.

However, the war in Ukraine and the conflict in the Middle East, as well as the economic developments in Europe, especially in Germany, continue to generate uncertainties and risks regarding the perspective of economic activity, implicitly the medium-term evolution of inflation.

At the same time, the absorption of European funds, mainly those related to the Next Generation EU program, is conditioned by the fulfillment of strict targets and benchmarks. However, it is essential for achieving the necessary structural reforms, including the energy transition, but also for counterbalancing, at least partially, the contractionary effects of geopolitical conflicts.

The perspective of the conduct of the monetary policies of the ECB and the Fed, as well as the attitude of the central banks in the region, are also relevant, points out the BNR.

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