January’s Romanian Central Bank Rate Cut Reversed at this Month’s Review

October 5, 2021

The National Bank of Romania‘s has raised its monetary policy rate by 25 basis points to 1.5%. At the onset of the pandemic, the rate had been slashed during 2020 by 50 basis points in March, 25 bps in May and 25 bps in August. The easing culminated with a fourth cut in January to 1.25%. Today’s first tightening since May 2018 was not unexpected in light of the acceleration of CPI inflation from 3.94% in June to 5.25% by August. Although due almost entirely to “exogenous shocks” like the global jump in energy costs and other supply shocks, officials felt compelled to act now insofar as inflation exceeds the target ceiling of 3.5% by almost two percentage points. Like other central bankers, members of the NBR’s Board now believe that inflation will stay elevated for longer than initially thought and thus see a rising risk of second-order inflationary strains. Leaving the door open to further responses, “The NBR closely monitors developments in the domestic and international environment and stands ready to use the tools at its disposal to achieve the fundamental objective of price stability in the medium term.”

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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