National Bank of Romania Keeps 1.75% Interest Rate but Flags Risks

June 30, 2016

Romania’s policy interest rate has been 1.75% since a 25-basis point cut in May 2015 that culminated 350 basis points of reduction over the prior two years.  A statement released after the central bank Board’s latest policy review highlighted new downside risks to be monitored.  “Banca Naţională a României

the external environment is marked by persistently low inflation, as well as by the escalating uncertainty about global economic growth, the UK’s status in relation to the European Union, and about the monetary policy stances of the world’s major central banks, given the higher volatility on international financial markets.”  And, “on the domestic front, risks stem from the fiscal and income policy stance, as well as from the adverse effects generated by legislative changes in the financial and banking areas.”  Romanian inflation is still negative but lessening so “due to the fading out of the direct impact of broadening, in June 2015, the scope of the reduced VAT rate to all food items.”  A gradual restoration of positive inflation is projected, and annual growth of 4.3% in the first quarter was good.  Note is also made that the Romanian leu has handled the recent European financial volatility better than many of its regional peers.  The still unfolding risks justify keeping the very accommodative policy stance, and a promise is made to monitor the situation and stand “ready to use all its available tools during this period of heightened uncertainty in a bid to fulfill the overriding objective regarding medium-term price stability and to preserve financial stability.”

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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