In its meeting of 6 November 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.
In September 2019, the annual CPI inflation rate went down to 3.5 percent (from 3.9 percent in August), thus returning to the upper bound of the variation band of the target. The evolution owed mainly to the pronounced slowdown in the annual growth rate of volatile food prices and that of fuel prices. Compared to end-Q2, when it had stood at 3.8 percent, the annual inflation rate posted a slightly larger-than-expected decrease. The decline was attributed to the deceleration in the dynamics of vegetable prices, administered prices and fuel prices.
The annual adjusted CORE2 inflation rate (which excludes from the CPI inflation administered prices, volatile prices, and tobacco product and alcoholic beverage prices) continued to increase in Q3, albeit at a slower-than-anticipated pace, going up from 3.3 percent in June to 3.4 percent in September. The advance reflected opposite influences stemming from the rise in some international agri-food prices and from the cut in the prices of telecommunication services, overlapping significant demand-pull and wage cost-push inflationary pressures.
The average annual CPI inflation rate continued to decline to 3.8 percent in September from 3.9 percent in August 2019; calculated based on the Harmonised Index of Consumer Prices, the average annual inflation rate went down to 3.9 percent from 4.0 percent July through August 2019.
The new statistical data on economic growth in 2019 Q2 confirm the slight deceleration in real GDP to 4.4 percent from 5 percent in the previous quarter (annual changes). According to the revised data, the contribution of household consumption was further prevalent, followed by that of gross fixed capital formation. Compared to the previous version, net exports had a smaller negative contribution to GDP dynamics, in the context of a sharper narrowing of the negative differential between the growth rates of exports and imports of goods and services. The evolution was also visible in the moderation of the annual pace of increase of the negative balance on trade. The annual dynamics of the current account deficit remained, however, at the previous quarter’s level amid the marked worsening of the primary and secondary income balances.
The latest statistical data point to mixed developments for consumption, investment and production July through August: a faster rise in retail sales concurrently with a slower annual growth rate of services to households than in Q2, a step-up in the construction activity, as well as a larger contraction in industrial output, particularly on account of manufacturing.
The growth rate of credit to the private sector moderated slightly in September, to 7.7 percent, from 8 percent in August. During Q3 overall, its average dynamics picked up, however, to 7.9 percent versus 7.5 percent in the previous quarter. The share of domestic currency loans in total private sector credit widened further, reaching 66.6 percent in September, against 65.4 percent in September 2018 (from a low of 35.6 percent in May 2012).
In today’s meeting, the NBR Board examined and approved the November 2019 Inflation Report, which incorporates the most recent data and information available. The new forecast points to the outlook for the annual inflation rate to end this year slightly above the variation band of the target, before returning and staying in the upper half of the band until the end of the forecast horizon, on a trajectory below that envisaged previously.
Heightened uncertainties and risks surrounding the inflation outlook stem from the future fiscal and income policy stance, especially amid the 2019-2020 election calendar, while the level and the trend of the current account deficit remain a matter of concern. Rising uncertainties are also generated by the increasingly obvious weakening of the euro area and global economies, as well as by the growing risks to their outlook, in the context of the trade war and Brexit. Particularly relevant are the ECB’s and the Fed’s decisions on monetary policy easing, as well as the stance of central banks in the region.
In today’s meeting, based on the currently available data and assessments, the NBR Board decided to keep unchanged the monetary policy rate at 2.50 percent per annum, while maintaining strict control over money market liquidity. 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. Furthermore, the central bank maintained the current levels of the minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board’s 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 2019, 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 2019, at 3:00 p.m.
The next monetary policy meeting of the NBR Board is scheduled for 8 January 2020.