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March 5, 2024
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Economy Romanian News

National Bank of Romania Increases Monetary Policy Rate to 2.5%

In the meeting held on February 9, 2022, based on the currently available data and assessments and in light of the elevated uncertainty, the NBR Board decided to increase the monetary policy rate to 2.50% per annum from 2.00% per annum as of February 10, 2022.

Galloping inflation in Romania has exceeded NBR’s forecast and reached 8.2% at the end of 2021, while CORE2 inflation was 4.7%. This is the third time NBR (National Bank of Romania) has modified the monetary policy rate in the last few months.

The NBR grows the monetary rate three times in just four months. The annual inflation rate climbed to 8.19% in December 2021, from 7.80% in November, mainly due to further hikes in energy prices.

The new statistical data reconfirm the slowdown in economic growth in 2021 Q3 to 0.4% from 1.5% in Q2, contrary to expectations, which makes it likely for excess aggregate demand to have shrunk in this period to a much lower-than-forecasted value, also due to the notable downward revision of statistical data on economic growth in 2021 H1, which implies as well that in Q2 the pre-pandemic GDP level was surpassed by a relatively more modest margin.

Once again, the prognosis doesn’t look right for the economy, despite the optimistic projection for 2022. With annual inflation of 8,19% in December, it’s hard to believe that the Government will keep the inflation at 5,8% in 2022, as mentioned in the public budget for this year.

The current scenario, which is based on the available data and the regulations in force, shows a considerable worsening of the short-term outlook for inflation, under the strong impact of supply-side shocks, mainly of energy prices, as the forecasted path of the annual CPI rate has been again revised markedly upwards over the short-term horizon.

National Bank of Romania, Press Release, February 2022

Besides all this, Romania is one of the countries warned in the last Nomura Damocles Index Report, among Turkey, Sri Lanka, Egipt. The Nomura report highlights that Romania should expect a severe risk of a currency crisis.

The NBR closely monitors developments in the domestic and international environment and will apply tools at its disposal to achieve the fundamental objective of price stability in the medium term. But with all this, It seems like as the month goes by, NBR mission to bring back the annual inflation rate in line is getting more difficult.

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