Romania’s central bank keeps key interest rate at 2.5 pct

Sorin Melenciuc 04/07/2018 | 13:25

The National Bank of Romania (BNR), Romania’s central bank, decided on Wednesday to maintain the monetary interest rate to its current level of 2.5 percent, in line with economists’ expectations, who forecast further increases at the next meetings this year.

On May 7, the central bank raised the monetary interest rate from 2.25 percent to 2.5 percent, the highest level since February 2015, as a consequence of upward revision of the inflation forecast.

“In its meeting of 4 July 2018, 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 central bank said in a press release.

Central bank’s decision was expected by the economists.

“We think the central bank may postpone a decision on the policy rate tomorrow. That is under normal circumstances,” Erste Group analysts said on Tuesday in a report.

“If however we consider the degree of pressure that capital outflows may be exerting currently, as suggested by FX forwards implied interest rates consistently trading above 4%, it could be that we are not in normal circumstances, in which case an early rate hike may be better advised. As we said, it will be a close call, which is why we assign a 60% probability of no hike versus a 40% probability of a hike,” they added.

Romania’s annual inflation rate soared to 5.4 percent in May, the highest rate since June 2013.

The current BNR forecasts, published in May, show inflation hitting 3.6 percent at the end of this year and 3 percent in December 2019.

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