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National Bank of Romania kept the monetary policy interest rate at 7%

5 July 2023
General Interest

The Board of Directors of the National Bank of Romania (BNR) decided on Wednesday to maintain the monetary policy interest rate at the level of 7% per year, informs the central bank.

Also, the BNR decided to keep the interest rate for the credit facility (Lombard) at 8% per annum and the interest rate for the deposit facility at 6% per annum and to maintain the current levels of the mandatory minimum reserve rates for liabilities in lei and in foreign currency of credit institutions.

The last key interest rate hike took place earlier this year, in January, when the central bank raised the interest rate to 7% per annum from 6.75% per annum previously, according to Agerpres.

According to the central bank, the annual inflation rate accelerated its decline in the first two months of the second quarter, falling from 14.53% in March to 10.64% in May, in line with forecasts, mainly as a result of the strengthening the downward trend of the dynamics of energy and fuel prices, under the impact of some basic effects, of the decrease in the crude oil price and of the electricity and natural gas price ceiling schemes.

At the same time, the annual rate of adjusted CORE2 inflation continued to decrease gradually in this interval, as expected, reaching 13.6% in May, from 14.6% in March, amid the intensification of disinflationary core effects, of the decrease in commodity prices, primarily agro-food, and the downward adjustment of short-term inflationary expectations. Their action outpaced the influences of the opposite direction that continued to come from the gradual transfer to consumer prices of the increased costs of companies, including salary ones, as well as from the preservation of profit margins, in the context of a still solid consumer demand.

The annual inflation rate calculated on the basis of the harmonized index of consumer prices (IAPC – inflation indicator for EU member states) decreased to 9.6% in May, from 12.1% in March 2023. At the same time, the average annual rate of CPI inflation and that calculated on the basis of the HIPC decreased in May to 14.7% and to 12.8%, from 15.3% and 13.2%, respectively, in March, remaining lower than those prevalent in the region and in Baltic countries.

Economic growth slowed down more than expected in the first quarter of 2023, to 0.1%, from 1.0% in the previous three months (quarter-on-quarter variation), a development that makes it likely that the surplus of aggregate demand will narrow somewhat more pronounced in this interval, compared to than the anticipated one.

At the same time, the advance in annual terms of GDP decreased in the first quarter more than forecast, to 2.3%, from 4.5% in the fourth quarter of 2022. The decrease was mainly determined by the variation in inventories, while household consumption, but also the gross fixed capital formation continued to accelerate its growth compared to the similar period of last year, and net export increased its contractionary impact relatively modestly, in the conditions in which the decrease in the dynamics of the volume of exports slightly surpassed that of the volume of imports of goods and services. However, the deficit of the commercial balance and the current account recorded substantial decreases in the first quarter compared to the same period of the previous year, mainly due to the improvement of the exchange rate.

According to the BNR, the latest data and analyzes indicate a more moderate growth of the economy in the second quarter compared to the previous forecasts, implying the further reduction of its annual dynamics, under the influence of a base effect.

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