The central bank also raised the interest rate for its deposit facility to 2.75% a year from 2% a year and the interest for its (Lombard) lending facility to 4.75% a year from 4% a year, applicable as of May 11, the central bank said in a statement.
It also decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
Romania’s annual inflation rate surged again in March 2022, climbing to 10.2% from 8.5% in February 2022, mainly following a stronger pick-up in processed food and fuel prices, under the impact of the sharp rise in agri-food commodity and crude oil prices, along with Russia’s invasion of Ukraine and the enforcement of international sanctions, the central bank said in a statement on Tuesday.
In the first quarter of 2022, the annual inflation rate thus recorded a further significant, higher-than-expected increase (from 8.19% in December 2021), with exogenous CPI (consumer price index) components making however a far more modest contribution, given the capping schemes for households’ energy bill. Against this background, the slower growth rates of electricity and natural gas prices in the first quarter have largely offset the influences of the strong rises in fuel and VFE (vegetables, fruit, eggs) prices.
“Moreover, a deceleration in annual GDP dynamics was reconfirmed, i.e. to 2.4% in the fourth quarter of 2021 from 6.9% in the previous three months, due to the notably slower pace of domestic absorption. Conversely, net exports made a lower negative contribution to GDP growth, as the annual dynamics of the import volume of goods and services declined faster than those of the export volume. Against this background, the annual increase in the negative trade balance decelerated considerably as against the third quarter, due also to the narrowing of the unfavourable differential between the change in import prices and that in export prices. However, the current account deficit widened in annual terms at a significantly faster pace, under the impact of the worsening of the secondary income balance, with its share of GDP climbing consequently to 7% in 2021 as a whole, from 5% in 2020”, as per the bank’s statement.
However, uncertainties and risks are also associated with the fiscal policy stance, given the requirement for further fiscal consolidation amid the excessive deficit procedure and the overall tightening trend of financing conditions, yet in a challenging economic and social environment domestically and globally, strongly marked by the war in Ukraine and the sanctions imposed.