On the external front, rising uncertainties stem from the increasingly obvious weakening of the euro area and global economies, as well as from the growing risks to their outlook, in the context of the trade war and Brexit. Particularly relevant are the ECB’s and the Federal Reserve’s decisions on monetary policy easing, as well as the stance of central banks in the region.
The central bank board on Thursday decided to keep the benchmark interest rate on hold at 2.5% a year, while reaffirming its commitment to maintain “strict control over money market liquidity”.
The central bank also maintained rates for deposit and lending facilities unchanged at 1.5% and 3.5%, respectively, and left minimum reserve requirements on foreign currency liabilities and for leu deposits unchanged at 8%.
The annual CPI inflation rate went up to 4.1% in July from 3.8% in June, whereas in August it declined to 3.9%, in line with the forecast, remaining above the variation band of the target. This was owed mainly to the hike in tobacco product prices and, to a lower extent, to the upward path followed by fuel prices and core inflation, the impact of which was only partly counterbalanced by that of a slowdown in the annual growth rate of administered prices and volatile food prices.
The latest assessments indicate the outlook for the annual inflation rate to remain above the variation band of the target until the end of this year, on a trajectory slightly below that shown in the latest medium-term forecast published in the August 2019 Inflation Report.
Statistical data on economic growth in the second quarter of 2019 indicate a mild deceleration in real GDP to 4.4% from 5% in the previous quarter (annual changes). On the demand side, the contribution made by household consumption continued to be significant, albeit on a decrease, being marginally exceeded by that of gross fixed capital formation.
The latest statistical data point to a further fast pace of increase of the activity in retail trade and services in July, a further strong uptrend in the dynamics of construction works, as well as a faster drop in industrial production, including manufacturing.
The growth rate of credit to the private sector picked up slightly in the first two months of the third quarter, to 7.9% in July, from 7.1% in June, and then to 8% in August. Behind the advance stood both leu-denominated loans and the foreign currency component. The latter continued to record faster dynamics ascribable solely to corporate credit.
The central bank board underlined that the balanced macroeconomic policy mix and the implementation of structural reforms designed to foster the growth potential over the long term are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand potential adverse developments.