The Board of Directors of the National Bank of Romania decided today to increase the monetary policy interest rate to 6.25 percent per year, from 5.50 percent per year, starting from October 6, 2022, after the annual inflation rate reached 15.32 percent in August, marginally above the forecast level, the institution announced.
”The annual inflation rate reached 15.32 percent in August, marginally above the forecast, after having fallen to 14.96 percent in July, from 15.05 percent in June. The increase was almost entirely driven by the continued hike in food prices, including the VFE component, however largely counterbalanced by the decline in fuel prices (amid motor fuel price compensation and lower oil prices), as well as by the base effects associated with developments in energy prices,” c-bank reveals.
At the same time, economic growth slowed down considerably in 2022 Q2 versus the previous quarter, to 2.1 percent from 5.1 percent in Q1, yet much more modestly than anticipated. This makes it likely for the excess aggregate demand to see a moderate rise in this period too, contrary to expectations.
Annual GDP growth saw only a slight deceleration in 2022 Q2, to 5.3 percent, from 6.4 percent in Q1, thus remaining significantly above the forecasts.
”According to current assessments, the annual inflation rate will probably stick to an upward path towards year-end, under the impact of supply-side shocks, yet at a visibly slower pace. Behind the additional worsening of the near-term inflation outlook stand the faster growth rates anticipated over the following months for the prices of natural gas and electricity – inter alia amid the changes made to the electricity price capping scheme –, as well as for food prices. The latter is seen to be influenced by the hefty advance in agri-food commodity prices, owing to the war in Ukraine and the associated sanctions, but also to the protracted and widespread drought in Europe this summer. The impact of these factors will only partly be counterbalanced by the disinflationary base effects anticipated to occur in the near run inter alia for fuels,” NBR officials add.
”Furthermore, the absorption of EU funds, especially those under the Next Generation EU programme, is conditional on fulfilling strict milestones and targets for implementing the approved projects. However, it is essential for carrying out the necessary structural reforms, energy transition included, but also for counterbalancing, at least in part, the contractionary impact of supply-side shocks, compounded by the war in Ukraine.”