National Bank of Romania’s Policy Interest Rate Raised 75 Basis Points to 8-Year High of 3.75%

May 10, 2022

While Federal Reserve officials have been talking the talk of an expeditious tightening of monetary policy, many other central banks have been actually walking the walk. The National Bank of Romania is one of these. Today’s announced Romanian interest rate hike was the largest in a string of six increases since October. In all, the rate has been lifted by 250 basis points. The Fed, by comparison, didn’t begin to raise rates until March, has only engineered two moves so far, and has not gone beyond a rise of 50 basis points. The Federal funds target ceiling of 1.0% now is lower than the level from which the National Bank of Romania started to tighten.

A statement released by the Board of the National Bank of Romania actions, which today included 75-bp hikes of the lending and deposit facility rates, “aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring back the annual inflation rate in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, in a manner conducive to achieving sustainable economic growth.” Regrettably as an eastern European economy near the Ukraine war, that development’s fallout points to both higher inflation and weaker growth in the near term. By March, CPI inflation had climbed already slighly above 10.0%. Officials warn that “the annual inflation rate is expected to accelerate its growth in 2022 Q2 and decline only gradually in the next four quarters.” This is a higher path than presented earlier.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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