The Romanian Central Bank maintains its monetary policy interest rate

The National Bank of Romania on Wednesday decided to maintain its current monetary policy interest rate at an annual 2.25%

România Internațional, 05.04.2018, 13:09

Economic analysts were expecting the National Bank of Romania to modify its monetary policy, but the banks board decided to keep the monetary policy rate at 2.25% per year. At the same time, the Central Bank decided to maintain the deposit interest rate at 1.25% and the credit interest rate at 3.25% per year. Analysts believed that inflation pressure and an increased level of liquidities in the market would have triggered a change in the monetary policy interest rate.

According to a National Bank release, the annual inflation rate saw a significant spike in January this year, up to 4.32% as compared to 3.32% in December 2017. Similarly, the inflation rate continued to rise in February to 4.72%, slightly below the forecast level. The main cause behind this is related to the basic effects of the reduction and elimination of several indirect taxes and fees during the similar period of last year, as well as with the recent rise in the prices for electricity, natural gas, thermal energy and fuel.

The National Bank Governor Mugur Isarescu has compared the efforts to curb inflation with treating a medical condition:

“For a drug to be effective, dosage and frequency of administration are extremely important. So we made a decision considering that not all the measures adopted in previous months are visible in the market. Then there have been many changes at European level. We must wait and see the reaction of European markets and the evolution of the inflation rate. Our estimate is that the rate will hit a maximum of 5%, and then it will start to drop. We will have to see if our estimates are confirmed before taking any further action”.

The National Bank Governor Mugur Isarescu has reiterated his message to commercial banks, urging them to increase deposit interest rates:

“Deposit interest rates are way under 1% right now, no matter what data you look at. So theres plenty of room for commercial banks to increase deposit interest rates”.

Mugur Isarescu has also warned that the current excess liquidity can disappear as quickly as it appeared, as it very much depends on the Treasurys cyclic activity. The Treasury is virtually Romanias largest bank, reporting large revenues at times but also significant payments at different moments in time, the National Bank Governor has also explained.