Latest Romanian Interest Rate Decision

August 3, 2011

Policymakers at the National Bank of Romania have the somewhat conflicting objectives of anchoring expected inflation and ensuring financial market stability via ample banking liquidity.  Policy has not been changed since a 25-basis point cut of the key interest rate to 6.25% fifteen months ago in May 2010.  That reduction culminated 400 basis points of stimulus delivered in nine doses from February 2009 to May 2010. 

A statement posted today on the central bank’s web site projects a significant drop in on-year inflation from 7.9% at mid-2011 to around 5% by yearend.  In spite of positive economic growth, the level of output remains below potential, and that spare capacity points to lower inflation in the near term.  Bank lending in Romania continues to be modest.  At the same time, the statement warns of significant upside price risks in the medium term.  Note is made that “risks related to a prolongation of the sovereign debt crisis persist,” and officials conclude that “a continued prudent monetary policy stance is needed not only to tackle the significant upside risks to inflation but also to address the possible increased capital flow volatility in emerging economies.”

The next policy meeting is scheduled for September 29.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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