In its meeting of 6 November 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 annual CPI inflation rate dropped to 5.03 percent in September 2018 from 5.06 percent in August, standing slightly above the projected level following faster annual growth in vegetables prices. By contrast, the other consumer basket components posted lower annual dynamics.
The annual adjusted CORE2 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, down to about 2.7 percent in September from 2.85 percent in August. The decline owed mainly to the processed food segment, under the influence of movements in international prices of some agri-food items.
The average annual CPI inflation rate reached 4.5 percent in September versus 4.2 percent in August; calculated based on the Harmonised Index of Consumer Prices, the average annual rate followed a similar path, rising to 3.8 percent from 3.5 percent in the previous month.
New data on economic growth reconfirm its marginal step-up to 4.1 percent year on year in 2018 Q2 from 4.0 percent in the previous quarter. On the demand side, the composition of GDP drivers saw a significant change, consisting mainly in an upward revision to 3.7 percentage points of the contribution of the change in inventories. Compared to 2018 Q1, household consumption recorded a slower annual pace of increase, whereas the path of gross fixed capital formation reversed, taking 1.1 percentage points off the real GDP advance. The contribution of net exports was further negative, but improved slightly against the previous data, as the growth rate of exports gained stronger momentum than that of imports.
The latest statistical data show mixed developments July through August compared to 2018 Q2: a faster annual increase in industrial output and slower growth in trade and services, while the volume of construction works declined in annual terms, particularly on account of the residential buildings segment, which was also affected by a strong base effect. At the same time, after having relatively stalled in 2018 Q2, the annual growth of unit wage costs in the industrial sector decelerated in the first two months of Q3, amid improved dynamics of labour productivity.
The relevant interbank money market rates saw their positive spread vis-à-vis the monetary policy rate widen slightly during October, while the EUR/RON exchange rate remained relatively stable.
The annual growth rate of credit to the private sector moderated slightly in September (to 6.3 percent, from 6.6 percent in August), as a result of slower dynamics of the leu-denominated component, on the back of housing loans and credit to non-financial corporations; conversely, the annual pace of increase of domestic currency-denominated consumer loans regained momentum to reach 13.3 percent. The share of the leu-denominated component in total private sector credit widened to 65.4 percent in September (from a 35.6 percent low in May 2012).
In today’s meeting, the NBR Board examined and approved the November 2018 Inflation Report, which incorporates the most recent data and information available. The new scenario of the projection reconfirms the prospects for the annual inflation rate to decline further towards the upper bound of the variation band of the target in December 2018, before dropping and remaining in the upper half of the band until the end of the forecast horizon.
The uncertainties and risks surrounding the inflation outlook stem mainly from developments in fuel prices worldwide, in administered prices (natural gas and electricity), in the prices of food items and tobacco products, as well as from labour market conditions and the fiscal and income policy stance. Also relevant are the pace of euro area and global economic growth amid protectionist trends and Brexit-related uncertainties, as well as 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 new quarterly Inflation Report will be presented to the public in a press conference on 8 November 2018, at 11:00 a.m. The account (minutes) of discussions underlying the adoption of the monetary policy decision during today’s meeting will be posted on the NBR’s website on 13 November 2018, at 3:00 p.m. The next monetary policy meeting of the NBR Board is scheduled for 8 January 2019.