National Bank of Romania

February 5, 2013

Romania’s monetary policy rate has not been changed since a 25-basis point cut to 5.25% in late March 2012, which culminated a sequence of four such moves that began in November 2011.  Earlier, five reductions totaling 225 bps were implemented in 2009, and another four moves totaling 175 bps were done in 2010.  The current 5.25% level constitutes a record low, and officials maintained that stance in spite of higher CPI inflation, which rose from 3.1% in the year to December 2011 to 5.0% in the more recent year to December 2012.  Romanian monetary officials are confident that the present stance will keep inflation expectations anchored and anticipate such settling back into the upper targeted range during 2013.  For one thing, higher inflation at present has been caused by supply-side shocks that are unresponsive to monetary policy.

The path of the annual inflation rate in 2012 H2 shows the adverse impact of supply-side factors – beyond the scope of monetary policy –, largely the higher domestic and global food prices and administered price adjustments, against the background of sharper exchange rate volatility.

For another thing, Romania has a negative output gap, that is less actual than potential GDP, and credit growth continues to be weak.  Reserve requirements were not changed at this month’s meeting.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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