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April 23, 2021

BNR ends reduction cycle of monetary policy interest rate, official says

The National Bank of Romania (BNR) will not lower the monetary policy interest rate any further; the 3.5 per cent level announced last Tuesday will be maintained for a rather long period of time, Bogdan Olteanu, Vice-Governor of BNR, stated in an interview for WSJ (the Wall Street Journal). “The easing cycle is over. Given the current domestic and global context, we expect to go on at this level,” Olteanu stated in New York, according to the WSJ, Mediafax reports. Tuesday, the Board of Directors at BNR lowered the monetary policy interest rate from 3.75 to 3.5 per cent per year, a new all-time low. It was the sixth interest rate reduction since the start of last year. Emerging markets around the world have been affected by massive capital withdrawals, after the United States Federal Reserve reduced the liquidity injection program through a take-over of shares. Many emerging states, including Turkey, have been forced to increase their interest rates in the last few weeks, in order to put a stop to national currency depreciation and capital outputs.
Olteanu also warned that the turmoil on emerging markets could determine investors to withdraw capital from Romania as well. Romania’s low inflation level offers our central bank some leeway to ease the monetary policy, he explained. Last year, the inflation rate was 1.55 per cent, a historical low.
Romania’s annual inflation rate for December was 1.3 per cent. The consumer price growth rate will range between 1.5 and 1.3 per cent in the following two years at least, Olteanu pointed out according to the WSJ. BNR announced a 3.5 per cent inflation prognosis for this year, 0.5 per cent higher than the November 2013 prognosis, and a 3.2 per cent inflation prognosis for the end of next year.
The leu depreciated by 1 per cent relative to the U.S. dollar this year, whereas other emerging currencies reported sharper falls, the WSJ notes. The Hungarian forint dropped by 4.5 per cent relative to the American dollar since the start of the year.
In the same interview, Olteanu said Romania could suffer from the overflow of the foreign markets’ situation, as investors will try to sell emerging assets on highly secure markets such as the U.S. Treasury bonds market or the Japanese yen market. “We are worried this uproar could lead to withdrawals from the state bonds and the stock exchange markets. Even if they (editor’s note – the investors) do withdraw, stability will bring them back,” the Vice-Governor of BNR explained.
Moreover, Olteanu stated that BNR intends to continue easing minimum mandatory reserves for banks, despite having concluded the interest rate reduction cycle. “We want to bring them to a lower level (…) to encourage lending activities and stimulate the economy,” the official concluded.

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