In its meeting of 7 May 2018, the Board of the National Bank of Romania decided the following:
- to increase the monetary policy rate to 2.50 percent per annum from 2.25 percent per annum as of 8 May 2018;
- to raise the deposit facility rate to 1.50 percent per annum from 1.25 percent per annum and the lending facility rate to 3.50 percent per annum from 3.25 percent per annum as of 8 May 2018;
- to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
In March 2018, the annual inflation rate continued to increase to reach 4.95 percent, in line with the forecast, from 4.72 percent in the previous month. The faster pace owed mostly to the action of supply-side factors, especially the hike in fuel prices, but also to the adjusted CORE2 inflation, the annual rate of which stayed on an upward trend to 3.0 percent in March from 2.9 percent in February. The advance in the adjusted CORE2 index shows pressures from excess aggregate demand in the economy, the rise in production costs (labour force, utilities), some influences exerted by the dynamics of the leu exchange rate, as well as the further upward adjustment of short-term inflation expectations.
The average annual CPI inflation rate followed a similar path, rising to 2.5 percent in March from 2.1 percent in February; calculated based on the Harmonised Index of Consumer Prices, the annual average stood at 1.9 percent, up from 1.6 percent in February.
The revised data on economic growth indicate a slightly more pronounced deceleration than previously published for 2017 Q4, its annual dynamics remaining, however, robust, at 6.7 percent (versus 6.9 percent initially). In 2017 as a whole, the growth rate of real GDP was revised to 6.9 percent (from 7 percent). On the demand side, the slight downward adjustment for 2017 Q4 reflected in both household consumption, the main driver of economic growth, and gross fixed capital formation. The negative contribution of net exports to the advance in real GDP remained unchanged.
The latest statistical data show the deterioration of the balance on trade in goods and services and, consequently, the widening of the current account deficit in the first two months of 2018 compared to the same year-earlier period. The same interval reports fast-paced annual dynamics of industrial output, although slightly moderating, a swifter increase in new orders across manufacturing, as well as a still high annual growth rate of trade and services.
Monetary conditions continued to be less accommodative in April, amid the rise in relevant money market rates and the relative stability of the leu exchange rate. The NBR strengthened control over liquidity across the banking system by conducting at mid-April time deposit-taking operations, with full allotment, at a rate equal to the policy rate.
In March, the annual growth rate of credit to the private sector remained at 6.1 percent. The leu-denominated component further widened its share in total credit to 63.6 percent, against a low of 35.6 percent in May 2012. Annual dynamics of loans to households stepped up to 9.4 percent, driven largely by consumer credit.
In today’s meeting, the NBR Board examined and approved the May 2018 Inflation Report, which incorporates the most recent data and information available. The new scenario of the projection reconfirms the prospects for a slight pick-up and a levelling-off of the annual inflation rate over several months at values above the variation band of the target, followed by its return to the vicinity of the upper bound of the band at the end of this year. Compared to the previous Inflation Report, the path of the annual inflation rate is expected to stick to coordinates almost similar to those in the preceding projection.
The uncertainties and risks surrounding the inflation outlook stem mainly from administered prices, labour market conditions and the future movements in the international oil price. Also relevant are the economic growth pace and developments in inflation in the euro area and hence the monetary policy stance of the ECB and of central banks in the region.
Based on the currently available data, the Board of the National Bank of Romania decided to increase the monetary policy rate to 2.50 percent per annum from 2.25 percent per annum; moreover, the NBR Board decided to raise the deposit facility rate to 1.50 percent per annum and the lending (Lombard) facility rate to 3.50 percent per annum. In addition, the NBR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board decisions aim to ensure and preserve price stability over the medium term in a manner conducive to achieving sustainable economic growth and amid safeguarding financial stability. The NBR Board underlines that the balanced macroeconomic policy mix and the implementation of structural reforms designed to foster the growth potential over the long term are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand potential adverse developments.
The new quarterly Inflation Report will be presented to the public in a press conference on 9 May 2018. The account (minutes) of discussions underlying the adoption of the monetary policy decision during today’s meeting will be posted on the NBR website on 14 May 2018, at 3:00 p.m.
The next monetary policy meeting of the NBR Board is scheduled for 4 July 2018.