Romania’s central bank maintains key interest rate at 2.5 pct for 11th time in a row

Sorin Melenciuc 03/10/2019 | 14:09

The National Bank of Romania (BNR) decided on Thursday to maintain the monetary policy interest rate to its current level of 2.5 percent for the eleventh time in a row, as high inflation and FX pass-through do not allow the central bank to join the global trend and ease its policy stance.

“In its meeting of 3 October 2019, the Board of the National Bank of Romania decided the following: 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.

In theory, central bank’s main job is to keep inflation under control and the monetary policy rate is one of its major tools in reaching this target.

Higher interest rates limits credit demand and consumer spending – and finally has an impact on consumer prices.

But now, as signs of economic downturn piles up in Romania, the local central bank has a limited marge de manoeuvre.

“With the economy holding on well on fiscal stimulus but likely to experience contagion from its main trading partners in the next couple of quarters, the NBR sees its hands tied. Above-target inflation and high FX pass-through, in the context of twin deficits and political noise, do not allow the NBR to join the global trend and ease its policy stance,” ING Bank analysts said in a recent report.

On May 7, 2018, 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.

Romania’s annual inflation rate was 3.9 percent in August. The current BNR forecasts show inflation rising to 4.2 percent in December 2019.

It is the second monetary policy decision after Mugur Isarescu, currently the longest serving central bank governor in the world, secured another 5-year term at the head of BNR as it won the support of the ruling governing alliance and of opposition parties.

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