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February 9, 2023

BNR: Analysis of monetary policy decisions (I)

The latest statistical data point to the annual inflation rate remaining below the lower limit of the target interval, against the backdrop in which the dynamic of annual volatile prices and Euro Zone inflation rate remains low, the negative output gap persists, prices on international markets remain low and inflation expectations consolidate at a low level.

The annual inflation rate stood at 0.8 per cent in March 2015, similar to the level registered in December 2014. The average annual inflation rate dropped to 0.9 per cent in March 2015, while the average annual inflation rate based on the harmonized consumer price index – an indicator relevant for assessing the convergence process – dropped from 1.4 per cent in December 2014 to 1.2 per cent.

RON-denominated crediting consolidated its upward trend, including as a result of monetary policy relaxation measures – successive monetary policy rate cuts, the narrowing of the symmetric corridor associated with it and the gradual lowering of minimum reserve requirements ratios.

The interest rates for new loans reached historic lows both in non-corporate and non-financial corporate segments. The stock of forex-denominated loans continued to drop against the backdrop of the intensification of operations meant to eliminate bad loans from the banks’ balance sheets. The share of RON-denominated loans grew to 45 per cent of total loans offered to the private sector, compared to 35.6 per cent in May 2012, the continuation of this upward trend being likely to lead to the real annual dynamics of total loans entering positive territory.

The Romanian economy grew by 2.8 per cent in 2014, recovering the losses registered after the start of the global financial crisis in 2008. In the last quarter of last year real GDP grew by 2.7 per cent in annual terms, the development being backed by all sectors of the economy. The accelerated dynamic of consumption and the outlook of recovering investments create the favourable premises for economic growth to consolidate in the following period. Foreign trade data point to the current account deficit remaining at a sustainable level over the medium term.

During its meeting today (May 6 – editor’s note), the BNR’s Board of Directors analyzed and approved its quarterly inflation report. Compared to the report issued in February 2015, the new quarterly projection forecasts a considerably lower trajectory for the annual inflation rate. The substantial revision of this trajectory mainly stems from incorporating the lowering of VAT on all foodstuffs, non-alcoholic beverages and public food services from 24 to 9 per cent starting on June 1. The impact of lowering the VAT rate for the aforementioned products and services (representing 32 per cent of the consumer basket) is expected to lead to annual inflation rate values in the ballpark of zero in the June 2015 – May 2016 period, the inflation rate being set to re-enter the inflation rate target’s variation interval in the last quarter of 2016.

(BNR’s Board of Directors)


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