Romania’s National Bank Increases Monetary Policy Rate to 1.75pc

On November 9, Romania’s National Bank decided to increase its monetary policy rate to 1.75%. The former policy rate was 1.50%. It is only the second rate hike since May 2018.

The decision is considered to be an unexpected shy movement of the National Bank of Romania. Other Eastern-European central banks, such as the Hungarian, the Czech, or the Polish, decided to fight the rising inflation by introducing much bigger hikes.

Romania’s consumer prices rose 7.94% year-on-year in October, compared to 6.29% in September. This is mostly because the prices of energy and natural gas soared, and all the dependent industries and sectors were forced to raise their selling prices as the production costs grew higher.

The terrible news is that inflation is not going to be cut off immediately:

The annual inflation rate is expected to remain on a steep uptrend until towards mid-2022, hence to climb further above the variation band of the target and above the previously forecasted levels, mainly as a result of the sizeable hikes anticipated for energy prices in 2021 Q4 and 2022 Q1, amid the abrupt rise in international prices. Afterwards, it will witness, however, a relatively swift downward adjustment, returning in 2023 Q3 inside the variation band of the target, in the context of ample base effects, as well as of the probably much slower increase in the excess aggregate demand, on a markedly lower trajectory than that projected in August.

Romania’s National Bank on inflation in the following months

This means that, for the average Romanian, inflation will continue to be a problem, and the political and health crisis will weigh more than ever in this context.