In its meeting of 3 October 2018, the Board of the National Bank of Romania decided:
- to keep the monetary policy rate at 2.50 percent per annum;
- to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending facility rate at 3.50 percent per annum;
- to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The developments in the annual CPI inflation rate over the first two months of Q3 overall were in line with expectations. In July, the indicator fell to 4.56 percent from 5.4 percent in the previous month, subsequently reaching 5.06 percent in August. The evolution versus June owed to supply-side factors and to some base effects, with the main influences being attributable to the slowdown in the growth rate of administered prices and fuel prices. The faster annual increase in vegetable and fruit prices acted in the opposite direction.
The annual adjusted CORE 2 inflation rate (which excludes from the CPI inflation a number of prices on which monetary policy has limited or no influence, i.e. administered prices, volatile prices, and tobacco product and alcoholic beverage prices) continued to fall slightly, down to 2.8 percent in August, after having remained flat at 2.9 percent in July. The decline was further induced by processed food and services, mainly under the influence of the dynamics of international prices of some agri-food items and given the movements in the EUR/RON exchange rate.
The average annual CPI inflation rate reached 3.9 percent in July and 4.2 percent in August against 3.6 percent in June; calculated based on the Harmonised Index of Consumer Prices, the average annual rate came in at 3.2 percent in July and 3.5 percent in August versus 2.9 percent in June.
Provisional data on economic growth in 2018 Q2 point to its slightly regaining momentum, in annual terms, to 4.1 percent from 4.0 percent in the previous quarter. Household consumption continued to be the main driver of GDP growth, closely followed by the change in inventories, whereas the contribution of gross fixed capital formation turned negative again. The contribution of net exports to the advance in GDP was further negative, but improved slightly against the previous quarter, as the growth rate of imports posted a more visible deceleration than that of exports.
The latest statistical data show a step-up in the annual pace of increase of industrial output in July compared with the previous months, especially across manufacturing, and further robust dynamics for the activity in trade and services. Construction works kept declining in annual terms, particularly on account of residential construction.
The annual growth rate of unit labour costs across the economy as a whole moderated slightly in Q2, while remaining, however, at an elevated level. At the same time, the annual change of unit wage costs in the industrial sector continued to pick up in Q2, but went down in July, amid the upturn in the annual dynamics of labour productivity.
The relevant interbank money market rates saw their positive spread vis-à-vis the monetary policy rate narrow gradually over the past two months. The EUR/RON exchange rate remained relatively stable.
The robust growth of credit to the private sector extended into July and August, at a pace of 6.6 percent, with the share of the leu-denominated component in total private sector credit reaching 65.3 percent (from a 35.6 percent low in May 2012). In turn, the share of loans to households peaked in August at a new historical high of 53.2 percent of total private sector credit.
The latest assessments reconfirm the outlook for the annual inflation rate to decline further towards the upper bound of the variation band of the target at the end of this year, in line with the August 2018 medium-term forecast.
The uncertainties and risks surrounding the inflation outlook stem mainly from developments in the prices of some food items, in administered prices (natural gas and electricity) and fuel prices, as well as from labour market conditions and the fiscal policy stance. Also relevant are the pace of global economic growth amid protectionist trends, the outlook for the economy and inflation in the euro area and the EU 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 keep unchanged the monetary policy rate at 2.50 percent per annum; moreover, the NBR Board decided to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending (Lombard) facility rate at 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 account (minutes) of discussions underlying the adoption of the monetary policy decision during today’s meeting will be posted on the NBR website on 10 October 2018, at 3:00 p.m.
The next monetary policy meeting of the NBR Board is scheduled for 6 November 2018, when a new quarterly Inflation Report is to be examined.