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June 22, 2021

Isarescu on BNR Board’s decisions: There is no political influence. At most, we’re careful. These are monetary policy decisions in a political context in which one must be careful

The decisions of the Board of Directors of the National Bank of Romania (BNR) are politically neutral but, nevertheless, they are adopted “in a political context in which one must be careful” and one must “weigh one’s words” so as not to be misinterpreted in a “capricious” elections year, BNR Governor Mugur Isarescu stated on Wednesday at a press conference that followed the announcement that the National Bank maintains the monetary policy interest rate at 2.50 per cent per year.

Isarescu pointed out that the BNR’s current Board of Directors is politically neutral and consists of professionals.

“The Board of Directors is neutral. I have seen speculations. The Board consists of professionals. (…) There is no political influence. At most, we are careful. These are monetary policy decisions in a political context in which one must be careful. One must weigh one’s words, so as not to be misinterpreted,” Isarescu said.

The Governor underscored that the BNR is determined to keep things under control in a “capricious” elections years, against the backdrop in which “it’s not easy anywhere in this world.”

“One has an impact via public message too. Our public message, if you want, in other words, is the following: with what we do, we are determined to keep things under control even during this pretty capricious elections year. It’s not easy. It’s not easy anywhere in this world, take a look at what happens in Europe and America too,” the Governor said.


Central Bank’s board decides to keep monetary policy rate at 2.50pct p.a.


At a meeting earlier on Wednesday the Board of the National Bank of Romania (BNR) decided to keep the bank’s monetary policy rate at 2.50 percent per annum, according to a BNR press statement.

It also decided to leave unchanged the deposit facility rate at 1.50 percent per annum and the lending facility rate at 3.50 percent per annum, and to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

“The decisions of the Board of Directors of the National Bank of Romania aim at ensuring and maintaining price stability in the medium term, in a manner conducive to sustainable economic growth and in keeping with the preservation of financial stability. The Board of Directors emphasizes that a balanced mix of macroeconomic policies and the implementation of structural reforms to stimulate the long-term growth potential are essential to maintaining macroeconomic stability and strengthening the Romanian economy’s capacity to cope with potential adverse developments,” the release says.

The annual CPI inflation rate rose to 4.03 percent in March 2019 and 4.11 percent in April, from 3.83 percent in February, above the target range and above predicted levels.

According to the central bank, the evolution was driven by higher prices for vegetables and fruit, as well as prices for fuel and tobacco products, the basic component of inflation also having a significant contribution.

The annualized adjusted CORE 2 inflation (which excludes from the CPI inflation administered and volatile prices for tobacco and alcoholic beverages) held steady at 2.7 percent in March, and rose to 3 percent in April. The advance reflects increasing inflationary pressures on demand and wage costs, as well as the impact of the new tax imposed on telecom companies, BNR specifies.

The annual CPI inflation rate continued to decline slightly, from 4.5 percent in February to 4.4 percent in March and 4.3 percent in April 2019, the annual average rate based on the harmonized consumer price index stood at 4.1 percent as of December 2018.

“The revised data on economic growth in the fourth quarter of 2018 confirms the annual dynamics of the real GDP, of 4.1 percent, versus 4.2 percent in the previous quarter. On the demand side, final consumption continues to be the main driver of economic growth ( 3.5 percentage points), followed by variation in inventories (3.2 pp) while the gross fixed capital formation reconfirms its negative contribution. In return, net exports has diminished its negative contribution to GDP dynamic, against the backdrop of an upward revision of the the dynamics of exports and imports of goods and services,” reads the BNR release.

The central bank also brings to mind the deepening of the current account deficit in the first quarter of 2019 compared to the same period of the previous year, albeit at a slower pace than in the fourth quarter of 2018.

On the other hand, there are mixed trends in production and investment. The annual dynamics of industrial output continued to decline in the first quarter of 2019 as compared to the fourth quarter of 2018, concurrently with the decline of the dynamics of new orders in the manufacturing industry. In annualized terms, the volume of construction work has increased substantially. At the same time, there has been further boost in the activity in retail trade and services, due to a significant pickup of the real net average wage rise.

Credit to the private sector has moderated its annual growth. Evolution reflected a slowdown in the rise in the RON component, at the same time as the considerable toning down of the foreign currency component decline. Against this background, the share of the loan in lei in the total credit rose marginally to 65.8 percent.

Still on Wednesday’s sitting, the BNR Board of Directors examined and approved the Report on inflation, the May 2019 edition. The new forecast scenario highlights the perspective of maintaining the annual inflation rate over the next three quarters above the target range, followed by its recovery and maintenance in the upper half of the range, until the end of the forecast horizon, given the upward revision of its projected trajectory, especially over the short-term horizon.

“The uncertainties and risks associated with the inflation outlook continue to be linked to the impact of the fiscal and budgetary measures implemented this year, including that of the bank asset tax and the new IRCC index on lending and the transmission mechanism of monetary policy. Significant uncertainties and risks are related to the conduct of fiscal and income policy and labor market conditions. The evolution of the current account deficit remains cause for concern. Also important are the uncertainties related to pace of the euro area and global economy growth rate, the evolution of oil prices on international markets, the monetary policy conduct of the ECB and the Fed, as well as of the central banks in the region,” the BNR release further underlines.

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