National Bank of Romania maintains key interest rate at 2.50% per annum

By Emea Riga
The Board of the National Bank of Romania (BNR) decided at its meeting on Tuesday to maintain the key interest rate at the level of 2.50pct per annum and to maintain the current levels of the mandatory minimum reserves for liabilities in lei and in foreign currencies of credit institutions, the central bank announced.
At the same time, BNR decided to maintain the interest rate for the deposit facility at 1.50pct per annum and the interest rate for the lending facility at 3.50pct per annum.
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.
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