In its meeting of 15 May 2019, 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 went up from 3.83 percent in February to 4.03 percent in March and 4.11 percent in April, thus standing above the variation band of the target and above the forecast. Behind this evolution stood the pick-up in the prices of vegetables and fruit, as well as the advance in fuel prices and tobacco product prices, yet core inflation also made a significant contribution thereto.
The annual adjusted CORE2 inflation rate (which excludes from the CPI inflation administered prices, volatile prices, and tobacco product and alcoholic beverage prices) remained at 2.7 percent in March, moving up to 3 percent in April. The increase shows rising demand-pull and wage cost-push inflationary pressures, as well as the impact of the new tax levied on telecom companies.
Average annual CPI inflation rate continued to decline slightly from 4.5 percent in February to 4.4 percent in March and 4.3 percent in April 2019; calculated based on the Harmonised Index of Consumer Prices, the average annual inflation rate has remained flat at 4.1 percent starting with December 2018.
The revised data on economic growth confirm that real GDP advanced by 4.1 percent year on year in 2018 Q4 compared to 4.2 percent in the previous quarter. On the demand side, final consumption continued to be the main driver of economic growth (3.5 percentage points), ahead of the change in inventories (3.2 percentage points), while gross fixed capital formation reported again a negative contribution. By contrast, net exports had a lower negative contribution to GDP dynamics against the background of an upward revision of the growth rates of exports and imports of goods and services.
The latest statistical data point to a widening of the current account deficit in 2019 Q1 compared to the same year-earlier period, albeit at a slower pace than in 2018 Q4.
Production and investment saw mixed developments. On the one hand, the annual dynamics of industrial output lost further momentum in 2019 Q1 compared to 2018 Q4, concurrently with the deceleration in the dynamics of new orders in manufacturing. On the other hand, in annual terms, the volume of construction works rose substantially. At the same time, retail trade and services continued to grow at a faster pace amid the significant step-up in the growth rate of the average net real wage.
The annual growth rate of credit to the private sector decelerated. The evolution reflected a slower rise in the domestic currency component, in parallel with a considerably slacker decline in the foreign currency component. Against this background, the share of leu-denominated loans in total private sector credit increased marginally to 65.8 percent.
In today’s meeting, the NBR Board examined and approved the May 2019 Inflation Report, which incorporates the most recent data and information available. The new scenario of the projection indicates the outlook for the annual inflation rate to remain above the variation band of the target during the next three quarters and thereafter return to and stay in the upper half of the band until the end of the forecast horizon amid the upward revision of its projected path, especially over the short time horizon.
The uncertainties and risks surrounding the inflation outlook further relate to the impact of the set of fiscal and budgetary measures implemented this year, including that of the bank asset tax and of the new benchmark index for loans to consumers (IRCC) on lending and on the monetary policy transmission mechanism. Significant uncertainties and risks stem from the fiscal and income policy stance and labour market conditions. The evolution of the current account deficit remains a matter of concern as well. Also important are the uncertainties about the pace of euro area and global economic growth, the international oil price developments, the monetary policy stances of the ECB and of the Fed, as well as of central banks in the region.
In today’s meeting, based on the currently available data and assessments, the Board of the National Bank of Romania decided to keep the monetary policy rate at 2.50 percent per annum, while tightening 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. 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 17 May 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 22 May 2019, at 3:00 p.m. The next monetary policy meeting of the NBR Board is scheduled for 4 July 2019.