Inflation Skyrockets in Romania: National Bank Hikes Key Interest Rate to 7pc

Inflation is uncontrollable in Romania, despite significant efforts of the National Bank. In its meeting of 10 January 2023, the Board of the National Bank of Romania decided:

• To increase the monetary policy rate to 7.00 percent per annum from 6.75 percent per annum as of 11 January 2023;
• to raise the lending (Lombard) facility rate to 8.00 percent per annum from 7.75 percent per annum and the deposit facility rate to 6.00 percent per annum from 5.75 percent per annum as of 11 January 2023;
• to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

The National Bank took these measures as it noted that the annual inflation rate reached 16.76 percent in November 2022, i.e. above the forecast, after falling to 15.32 percent in October from 15.88 percent in September. The increase was driven, during this period, too, especially by the hike in food prices, including VFE prices, and the more robust advance in the prices of non-food items and market services. However, their impact was markedly counterbalanced by the slower fuel price dynamics amid the downward trend in oil prices and the firewood price cap.

In the meeting held today, 10 January 2023, based on the currently available data and assessments, as well as in light of the very elevated uncertainty, the NBR Board decided to increase the monetary policy rate to 7.00 percent per annum from 6.75 percent per annum as of 11 January 2023. Moreover, it decided to raise the lending (Lombard) facility rate to 8.00 percent per annum from 7.75 percent per annum and the deposit facility rate to 6.00 percent per annum from 5.75 percent. Furthermore, the NBR Board decided to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

NBR meeting on January 10

According to the NBR meeting minute, the NBR Board decisions aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, to bring the annual inflation rate back 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. At the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, among other things, by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.