The National Bank of Romania (BNR) kept its benchmark interest rate unchanged at 6.5 percent on Friday (Oct. 4), following two consecutive rate cuts. Moreover, it decided to leave unchanged the lending (Lombard) facility rate at 7.50 percent per annum and the deposit facility rate at 5.50 percent per annum.
The annual inflation rate went up to 5.42 percent in July, from 4.94 percent in June, before easing to 5.1 per cent in August. This increase was driven by a rapid rise in food and energy prices due to severe drought conditions and higher natural gas distribution tariffs, overshadowing decreases in administered prices and fuel prices influenced by falling crude oil prices. According to current assessments, the annual inflation rate will decline until end-2024 on a fluctuating and higher path than that shown in the August 2024 medium-term forecast.
As for economic activity, it posted a slower quarter-on-quarter increase to 0.1% in Q2, down from 0.5% in Q1, indicating a reduction in excess aggregate demand. However, year-on-year GDP growth improved to 0.8% in Q2, mainly as a result of the surge in the annual dynamics of household consumption. At the same time, the growth rate of gross fixed capital formation remained robust, although it continued to slow down compared to the prior quarter.
Heightened uncertainties and risks to the outlook for economic activity, implicitly the medium-term inflation developments, stem from the war in Ukraine and the Middle East conflict, as well as from the economic performance in Europe and globally, in the context of escalating geopolitical tensions.
“The NBR closely monitors developments in the domestic and international environment and stands ready to use the tools at its disposal in order to achieve the fundamental objective regarding medium-term price stability, while safeguarding financial stability” BNR said.
The annual growth rate of credit to the Romanian private sector picked up further in the first two months of Q3, to 7.7 percent in August from 6.7 percent in June, mainly due to the faster rise in domestic currency loans to households, primarily driven by consumer credit. The share of the leu-denominated component in credit to the private sector widened more visibly, to 69.7 percent in August from 69.1 percent in June.
The next monetary policy meeting of the NBR Board will be held on 8 November 2024.