Romania‘s central bank announced on Tuesday that it will increase its monetary policy rate to 3% from 2.50% as of April 6, its fifth rate hike since May 2018, according See News.
The central bank BNR, also decided to hike the deposit facility rate to 2% per year from 1.50%, and increase the lending facility rate to 4% from 3.50%, it said in a statement after a board meeting on monetary policy.
BNR decided to maintain the existing ratios of minimum reserve requirements for both leu- and foreign currency-denominated liabilities of banks.
“According to current assessments, the annual inflation rate is expected to rise somewhat more steeply in the coming months than anticipated in February, under the impact of supply-side shocks,” said the central bank.
BNR explained that behind the renewed worsening of the near-term inflation outlook stand the expected much higher increases of fuel prices, and especially of processed food prices, mainly due to the stronger advance in crude oil and agri-food commodity prices, amid the war in Ukraine and the international sanctions against Russia in place.
The BNR expects that inflationary effects will prevail in the near term over the substantial disinflationary impact presumably generated by the one-year extension of capping schemes for electricity and natural gas prices for households.
The central bank also noted that uncertainties and risks surrounding medium-term prospects increase nevertheless, considerably owing to the war in Ukraine and the associated sanctions, which pose a new sizeable supply-side shock globally. This exerts divergent effects on inflation and economic activity domestically, mainly by compounding the energy crisis and the production chain bottlenecks, but also via other channels, such as economy and inflation dynamics in Europe and worldwide.
The bank noted that the improvement in the epidemiological situation on the domestic front led to the end of the state of alert in the first 10-day period of March 2022 and to the lifting of all mobility restrictions, with favourable effects on economic activity.
The BNR’s board decisions aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring back the annual inflation rate in line with the 2.5 percent ±1 percentage point flat target on a lasting basis.
Romania’s consumer prices rose by 8.53% year-on-year in February, compared to an increase of 8.35% in January, the most recent data from the national statistical office showed.
The next monetary policy meeting of the central bank’s board is scheduled to take place on May 10.