The central bank’s Board also decided to leave the (Lombard) lending facility rate unchanged at 8% per year and the deposit facility rate unchanged at 6%, respectively, the central bank said in its statement regarding monetary policy decisions.
The bank also decided to keep a tight grip on money market liquidity and to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
In today’s meeting, the central bank’s Board of Directors also analyzed and approved the November 2023 edition of the inflation report, which encompasses the latest data and information available.
Thus, the updated forecast reconfirms the perspective of a continued annual inflation rate over the next two years, on a higher trajectory, however, in 2024, compared to the previous projection, but slightly lower along the subsequent quarters.
Please read below a part of the full press statement of the Romanian central bank:
The annual inflation rate went down to 8.83 percent in September 2023, in line with forecasts, from 9.43 percent in August, amid the deceleration in the growth rate of processed food prices and the faster annual decline in energy prices.
In Q3/2023, the 12-month inflation rate continued therefore to drop, albeit at a slower pace than in the previous two quarters, shedding 1.42 percentage points (from 10.25 percent in June), given that the further sharp decreases in the dynamics of food and energy prices during this period were partly counterbalanced, in terms of impact, by the hike in fuel and medicine prices.
Sizeable uncertainties and risks to the inflation outlook stem, however, from the increases in taxes and charges aimed at furthering budget consolidation, potentially supplemented in the future, but also from the evolution of oil prices, in light of the Middle East conflict.
Notable uncertainties and risks are, nevertheless, further associated with the future fiscal and income policy stance, given the recent actions aimed at containing budget expenditures in 2023 and the possible broadening over the next years of the package of corrective fiscal and budgetary measures, but also the potential implications of the new legislation on pensions and wages in the public sector, as well as possible further pay rises in the budgetary sector.
At the same time, significant uncertainties and risks to the prospects for economic activity, implicitly the medium-term inflation developments, arise from the war in Ukraine and the Middle East conflict, as well as from below-expectations economic performance in Europe, especially in Germany.
Furthermore, the absorption of EU funds, especially those under the Next Generation EU program, is conditional on fulfilling strict milestones and targets. However, this is essential for carrying out the necessary structural reforms, energy transition included, as well as for counterbalancing, at least in part, the contractionary impact of supply-side shocks, compounded also by the tightening of economic and financial conditions worldwide.
Also relevant are the European Central Bank and the Fed’s prospective monetary policy conduct, as well as the stance of central banks in the region.
The decisions of the central bank’s Board aim to bring the annual inflation rate back in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, inter alia by anchoring inflation expectations over the medium term, in a manner conducive to achieving sustainable economic growth. At the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, also by using EU funds 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 adverse developments.