The NBR Board has decided to keep the monetary policy rate at 2.5% per annum

By Andra Beltz
The Board of the National Bank of Romania decided in Wednesday’s meeting to keep the monetary policy rate at 2.5% per annum, according to a statement.
The Board also decided to maintain the interest rate for the deposit facility at 1.5% per year and the interest rate for the credit facility at 3.5% per year and to maintain the current levels of the minimum reserve rates applicable to the liabilities in lei and in the currency of credit institutions.
NBR reports that the annual CPI inflation rate fell to 3.4% in October, from 3.5% in September, but in November it rose to 3.8%, above the target range, in line with the most recent medium-term forecast. The advance compared to September was mainly due to higher prices of vegetables and fruits, but also to accelerating basic inflation.
‘The adjusted CORE2 annual inflation rate (which eliminates from the calculation of CPI inflation the administered prices, volatiles, tobacco products and alcoholic beverages) continued to increase in the first two months of the IV quarter, from 3.4% in September, to 3.5 percent in November, slightly above the forecast level. The increase reflected the influences from rising international prices of some agri-food raw materials and the slight depreciation of the leu against the euro, superimposed on significant inflationary pressures on the demand side and the unit costs with the labor force, ”the NBR said in a statement.
At the same time, the average annual rate of CPI inflation fell to 3.7% in October and subsequently returned in November to 3.8% recorded in September 2019, while the average annual rate calculated on the basis of the harmonized price index consumption continued to fall to 3.8% between October and November, from 3.9% in September.
Economic growth continued to decelerate in the third quarter of 2019, its annual dynamics being reduced to 3%, from 4.4% in the previous quarter.
‘On the demand side, the consumption contribution of the households remained significant, but decreased visibly (up to 3 percentage points, in the context of the unfavorable agricultural year), being substantially exceeded by that of the gross fixed capital formation (5.9 percentage points). The net export increased its negative contribution to the dynamics of the GDP, against the backdrop of the more pronounced acceleration of the increase of the imports in relation to the one of the exports of goods and services’, specifies the NBR.
According to the quoted source, the most recent statistical data show mixed developments in annual terms in the sphere of consumption, investment and industrial production in October: on the one hand, maintaining a high dynamic of the population purchases of goods and services and increasing the volume alert. of construction works, and on the other hand the increase of the contraction of the industrial production, respectively the restriction of the new orders in the manufacturing industry.
At the same time, the latest balance of payments data shows the slowdown in the annual balance of the balance of trade balance in October compared to the third quarter. However, the current account deficit has exacerbated its deepening, as a result of the worsening of the primary and secondary income balances, and its coverage with foreign direct investments and capital transfers has decreased.
The annual growth of the loan granted to the private sector continued to ease slightly in October and November – to 7.5%, respectively to 7.2%, from 7.7% in September -, its average over the two months decreasing to 7.32%, from 7.9% in the third quarter. In the conditions in which the deceleration was due exclusively to the component in foreign currency, the share in total credit of the component in lei continued to increase, reaching in November at 67.2%, the highest level since May 1996.
‘The latest assessments reconfirm the prospect of placing the annual inflation rate slightly above the target range at the end of 2019, followed by its return and maintenance in the upper half of the interval over the near time horizon, at values slightly lower than those highlighted in the most recent forecast. medium term published in the Inflation Report of November 2019. Uncertainties and increased risks regarding the inflation outlook arise from the conduct of fiscal and income policy, according to the internal electoral calendar ‘, says in the statement.
According to the NBR, the current account deficit trend is also of concern. Uncertainties also generate the evolution of the euro area and the global economy, amid increasing geopolitical tensions and vulnerabilities of emerging markets, and the accommodative conduct of the ECB and Fed’s monetary policies, as well as the attitude of central banks.