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March 4, 2024
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Economy Finance Romanian News

NBR Expects Inflation to Grow Higher than Initially Estimated in 2021

The National Bank of Romania expects the inflation in the country to grow higher than the initial estimations. This is the conclusion of the monetary policy meeting in August.

As for future macroeconomic developments, Board members discussed at length the anticipated inflation pattern, showing that it was again revised markedly upwards in the short term and to a smaller extent over the latter part of the projection horizon. Specifically, the annual inflation rate was expected to climb more sharply above the variation band of the target in 2021 H2 than anticipated previously, to 5.6 percent in December 2021 from 4.1 percent in the May forecast, and following the downward corrections in the first part of next year to decline and then remain marginally below the upper bound of the band, at 3.4 percent, above the 3.0 percent level forecasted previously.

NBR minutes of the monetary policy meeting on August 6

Inflation growth is triggered mainly by the increase of gas and electricity prices, which led to growth in consumer prices. According to experts from the National Bank of Romania, the increase in gas and electricity prices alone brought 1 point to inflation.

On the other hand, experts expect further economic growth, solely supported by the increase in domestic demand.

At the same time, domestic demand was reconfirmed to be the sole driver of the economic upturn, in the context of the strong re-acceleration of household consumption, but also amid the significantly faster increase in gross fixed capital formation, even above the prior estimate. 

NBR on economic growth

Romania is expected to have a 7% economic growth in 2021. This percentage is mentioned by many international organizations, including the International Monetary Fund or the World Bank. Yet, inflation remains a big problem and it represents a risk for the purchasing power of the citizens.

Under the circumstances, the NBR Board unanimously decided to keep the monetary policy rate at 1.25 percent, while preserving tight control over money market liquidity; moreover, it decided to leave unchanged the deposit facility rate at 0.75 percent and the lending (Lombard) facility rate at 1.75 percent.

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