In its meeting of 8 January 2019, the Board of the National Bank of Romania decided the following:
- 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 fell to 3.43 percent in November 2018 (from 5.03 percent in September and 4.25 percent in October), returning inside the variation band of the flat target, amid some base effects and the carefully calibrated monetary policy stance. The disinflationary base effects mainly marked the developments in volatile and administered prices, also influenced by the decreases in fuel prices and prices of fruit and vegetables seen in November.
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) followed a slightly steeper downward path, falling to 2.5 percent in November from 2.78 percent in September. The decline continued to be mainly induced by processed food and services, under the influence of base effects and the evolution of the EUR/RON exchange rate in November.
In November, the average annual CPI inflation rate remained flat at the 4.6 percent level reported in October (versus 4.5 percent in September); calculated based on the Harmonised Index of Consumer Prices, the average annual rate saw a similar evolution, remaining unchanged at 4.0 percent from October (compared to 3.8 percent in September).
In 2018 Q3, the annual economic growth continued to see a slight step-up to 4.3 percent from 4.1 percent in the previous quarter, solely on account of agricultural output increasing way above expectations. On the demand side, the major contributor to GDP growth was further the change in inventories, followed by household consumption, whereas gross fixed capital formation made a lower negative contribution.
The negative contribution of net exports to the advance in GDP increased amid a relatively faster slowdown in the growth rate of exports of goods and services, which, alongside the worsening of the primary and secondary income balances, led to a swifter rise in the current account deficit from the same year-earlier period.
The latest statistical data show mixed developments for October 2018 compared to Q3: the faster annual dynamics of retail trade and market services to households, the persistent drop in construction works, the slowdown in the pace of increase of industrial output, concurrently with new orders across manufacturing regaining momentum.
The relevant interbank money market rates saw their positive spread vis-à-vis the monetary policy rate narrow in November and December 2018, while the EUR/RON exchange rate remained relatively stable until towards end-2018.
The annual growth rate of credit to the private sector accelerated in October, before moderating slightly in November, its average remaining marginally above that recorded in Q3. Behind these developments stood the relative recovery in the dynamics of credit to non-financial corporations – on account of the foreign currency component –, as well as the further fast increase in loans to households, albeit slowing down slightly versus Q3. The share of the leu-denominated component in total private sector credit widened to 65.6 percent in November, from a 35.6 percent low in May 2012.
The latest assessments indicate the outlook for the annual inflation rate to decline further and remain over the very short time horizon slightly below the upper bound of the variation band of the target, in line with the latest medium-term forecast published in the November 2018 Inflation Report.
The uncertainties and risks surrounding the inflation outlook are compounded by the pace of euro area and global economic growth, as well as by the monetary policy stance of the ECB and of central banks in the region. Also relevant are the fiscal and income policy stance, given inter alia the still pending 2019 budget, as well as the hasty nature and the contents of the set of fiscal and budgetary measures effective 1 January 2019.
In today’s meeting, based on the currently available assessments and data, the Board of the National Bank of Romania decided to keep 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 15 January 2019, at 3:00 p.m. In line with the announced calendar, the next monetary policy meeting of the NBR Board is scheduled for 7 February 2019, when a new quarterly Inflation Report is to be examined.