Romania’s central bank: Monetary policy stays restrictive ahead of high uncertainty

The National Bank of Romania (BNR) has not relaxed its monetary policy despite the two rate cuts operated already this year. Furthermore, it is not engaged in a monetary easing cycle, BNR governor Mugur Isarescu explained on August 9 while unveiling the quarterly Inflation Report.

BNR cut the policy rate by 0.25 basis points to 6.5% on August 7 after a similar rate cut in July, after it kept the rate at 7% since January 2023 with the result of bringing the headline inflation under 5% y/y in June.

The updated Inflation Report revises the inflation’s trajectory downwards until Q2 2025 (compared to the previous forecast published in May). The yearend inflation is seen at 4% in 2024 (4.9% under the previous projection) and 3.4% y/y (3.5% previously) in 2025.

BNR outlines many risks to its inflation forecast, though mostly upward-oriented.

“We never said ‘the monetary easing cycle began’ because the [monetary] interest rate is now positive after it was negative in the past. [...Furthermore,] the monetary easing involves more than cutting the monetary policy rate,” governor Isarescu stressed.

The central bank’s board has not deferred the rate cut on August 7, as some expected in the context of the global turmoil in the days preceding the monetary policy meeting, because such a step might generate side effects later in the autumn, Isarescu explained.

“A reversal of capital flows can occur at any time. We have instruments to address such a situation. We are not going to raise the monetary policy rate, but we can strengthen the monetary policy with other instruments,” Isarescu assured.

(Photo: Octav Ganea/ Inquam Photos)