In its meeting of 7 February 2018, the Board of the National Bank of Romania decided:
- to increase the monetary policy rate to 2.25 percent per annum from 2.00 percent per annum as of 8 February 2018;
- to raise the deposit facility rate to 1.25 percent per annum from 1.00 percent per annum and the lending facility rate to 3.25 percent per annum from 3.00 percent per annum as of 8 February 2018;
- to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
In December, the annual inflation rate climbed to 3.32 percent from 3.23 percent in November, standing inside the variation band of the flat target, but higher than the forecast. Behind this evolution stood primarily the step-up in core inflation and, to a small extent, the increase in volatile food prices and tobacco product prices.
The annual adjusted CORE2 inflation rate continued to go up, reaching 2.5 percent in December 2017 versus 2.3 percent in November. Against the background of still rising excess aggregate demand in the economy and growing producer costs (labour force, utilities), the increase affected all categories of goods and services, particularly processed food, which was also hit by some supply-side shocks that were common at a European level.
The average annual CPI inflation rate continued to advance up to 1.3 percent in December 2017 from 1.0 percent in November; calculated based on the Harmonised Index of Consumer Prices, the annual average stood at 1.1 percent, up from 0.9 percent in the previous month.
The revised data on third-quarter economic growth reconfirm the fast real GDP dynamics, i.e. 8.8 percent. The major driver of growth was household consumption (8.3 percentage points), whose annual pace of increase stepped up considerably to 12.5 percent, similar to the pre-crisis levels. The expansion in consumption was fostered by the income-boosting measures implemented as from 1 July 2017, which overlapped with the favourable financial conditions, and by the stimulative labour market conditions. In 2017 Q3, gross fixed capital formation also made a positive contribution to economic growth (2.1 percentage points).
The contribution of net exports to GDP growth remained in negative territory. The current account deficit widened at a swifter annual rate, amid the larger negative balance on trade in goods.
Statistical data for the first two months of the final quarter of 2017 point to a strengthening of the uptrend seen in industrial output, accompanied by a swifter advance in new orders across manufacturing and further high growth rates of the activity in trade and services, against the backdrop of an increase in net real average wage. The trade deficit continued to worsen, as the annual growth rate of imports still outpaced that of exports.
Credit to the private sector continued its robust growth in December 2017, at an annual rate of 5.6 percent, given that the leu-denominated component increased by 15.8 percent in annual terms, its share in total credit widening to 62.8 percent (from a 35.6 percent low in May 2012).
In today’s meeting, the NBR Board examined and approved the February 2018 Inflation Report, which incorporates the most recent data and information available. The new scenario of the projection points to prospects for a pick-up in the annual inflation rate in the months ahead, followed by a slowdown starting with the latter part of 2018. Thus, compared to the previous Inflation Report, the path of the forecasted annual inflation rate has been revised upwards in the short run, mainly due to the relative strengthening of recent and anticipated inflationary effects of supply-side factors, as well as to pressures from fundamentals.
The uncertainties and risks surrounding this outlook stem primarily from the fiscal and income policy stance, labour market conditions, as well as from developments in administered prices.
Looking at the external environment, relevant are the uncertainties and risks regarding the volatility of international financial markets, the developments in oil and agri-food prices, as well as the pace of economic growth in the euro area and worldwide, also amid the normalisation of the monetary policy stances of the major central banks.
Given the current assessments, the information available at present, as well as the new sources of uncertainty, the Board of the National Bank of Romania decided to increase the monetary policy rate to 2.25 percent per annum from 2.00 percent per annum; moreover, the NBR Board decided to raise the deposit facility rate to 1.25 percent per annum and the lending (Lombard) facility rate to 3.25 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. The NBR Board underlines that the balanced macroeconomic policy mix and progress in structural reforms are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand potential adverse developments.
The NBR is closely monitoring domestic and external developments and stands ready to use all its available tools with a view to fulfilling its primary objective. The new quarterly Inflation Report will be presented to the public in a press conference on 9 February 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 February 2018, at 3:00 p.m.
The next monetary policy meeting of the NBR Board is scheduled for 4 April 2018.