Romanian Monetary Policy
September 27, 2012
Policymakers at the National Bank of Romania left their main interest rate at 5.25% in spite of a significantly greater on-year 3.9% rise of consumer prices because
- The CPI spike should recede given Romania’s sizable negative output gap,
- The CPI spike does not reflect an underlying deterioration but rather supply-side food shocks and an adverse base effect,
- The external environment is “uncertainty-ridden,”
- Credit growth has continued to slow.
The central bank has not raised rates since prior to the Great Recession. The key rate at peak was 11.5%. A series of subsequent cuts paused at 6.25% but resumed in late 2011 with reductions of 25 basis points in November followed by three more cuts in the first quarter of 2012 by that amount. After negative first-quarter growth this year, Romanian GDP only rose moderately in 2Q. Aside from guarding against pass-through effects of the spike in consumer prices, officials need to keep an eye on the Romanian leu, which had shown some vulnerability last year. A statement released today by Bank officials notes that other elements of policy like the reserve requirement were also left as is and calls its policy stance “prudent” and sufficient to anchor inflation expectations. The next policy review is set for November 2.
Copyright 2012, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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