National Bank of Romania
August 4, 2015
Romania’s central bank benchmark interest rate of 1.75% was not cut despite a drop in inflation caused by recent fiscal changes including reduced value added tax. Today’s statement explains, “the strengthening over the short term of the transitory disinflationary impact exerted by the aforementioned fiscal measures masks the build-up of medium-term inflationary pressures, given the faster closing of the negative output gap, followed by the gradual widening of excess demand, along with the pick-up in unit labor costs. The risks to the inflation outlook stem from both external and domestic developments, relating mainly to the uncertainty about the economic policies in the period ahead and the relations with the international financial institutions… it is necessary for the fiscal policy measures pending implementation not to jeopardize macroeconomic stability, which is an extremely important public asset underlying the currently favorable sentiment towards Romania.”
CPI inflation of 0.7% is below the 1.5-3.5% target. The key interest rate was reduced four times by a total of 100 basis points during the first half of 2015, and 1.75% constitutes a record low.
Copyright 2015, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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