National Bank of Romania

February 6, 2016

Romania’s monetary policy rate was cut by 225 basis points in 2009, 195 bps in 2010, 25 bps in 2011, 75 bps in 2012, 125 bps each in 2013 and 2014, and 100 basis points in 2015, but the last change occurred nine months ago in May.  The rate since then as been 1.75%, and the latest policy meeting voted to keep such there and released a statement that depicts a domestic situation pointing to eventual higher rates but external factors that argue for caution.

The forecast points to the annual inflation rate re-entering the variation band of the target at the beginning of 2017 and remaining there afterwards. This is attributable to the fading out of the transitory disinflationary impact of the standard VAT rate cut, to the easing of the fiscal policy stance and to the rise in unit wage costs.  The risks to the current projection stem primarily from the domestic environment. They are triggered by the uncertainty about the fiscal and income policies, as well as about the implementation of structural reforms, in the context of the elections scheduled to take place this year and in the absence of agreements with international financial institutions.

On the external front, particularly relevant is the heightened uncertainty surrounding global economic growth, stemming from the performance of the Chinese economy and of other major emerging economies, with implications on euro area recovery. Adding to this is the uncertainty about developments in international oil prices and the recent spike in global financial market volatility, associated with the increasingly diverging monetary policy stances of the world’s major central banks.

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


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