Romania's central bank keeps monetary policy rate at 2.5%, warns of fiscal policies

Romania’s National Bank (BNR) maintained the monetary policy rate, used to inject short-term funds on the money market, at 2.5%. The decision, made in BNR’s August 5 monetary board is in line with the analysts’ expectations.

As the external balance is deteriorating at a slower rate, the fiscal deficit emerges as the new threat, the BNR board hinted.

“The latest statistical data show a slowdown in the annual growth rate of the trade deficit with goods and services in the first two months of Q2, as well as a faster widening of the current account deficit in annual terms amid the deterioration of the balance on secondary income,” the press release reads.

The major uncertainties and risks surrounding the inflation outlook stem from the future stance of fiscal and income policies, while the evolution of the current account deficit is a matter of concern.

The analysts anticipated the monetary policy status quo, despite the rising inflationary pressures and the fiscal slippage likely to be only partially addressed by a package of measures announced by the Government for the same day of the monetary board (August 5), Economica.net reported. Raiffeisen Bank chief economist Ionut Dumitru, until recently head of the Fiscal Council, estimates the central bank will not change the policy rate before the end of the year when the headline inflation would reach 4.3%, and the exchange rate for the euro would hit RON 4.8 (from RON 4.73 currently).

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