The central bank 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.
The annual inflation rate saw a faster decline in the first two months of Q2, falling from 14.53% in March to 10.64% in May, in line with the forecasts, mainly as a result of the stronger downward trend in energy and fuel price dynamics, under the impact of some base effects, lower crude oil prices and capping schemes for electricity and natural gas prices. According to current assessments, the annual inflation rate will continue to fall over the following months, in line with the latest medium-term forecast (May 2023), primarily under the influence of base effects and the downward corrections of some commodity prices in previous quarters, the statement reads.
Uncertainties and risks surrounding the outlook stem, however, from the measure to cap temporarily the mark-ups on basic food products and from additional oil supply cuts announced by OPEC (Organization of the Petroleum Exporting Countries) countries.
At the same time, the war in Ukraine and the related sanctions continue to generate significant uncertainties and risks to the outlook for economic activity, hence to medium-term inflation developments, while the absorption of EU funds, especially those under the Next Generation EU programme, is conditional on fulfilling strict milestones and targets for implementing the projects. However, it 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, according to the statement.
Heightened uncertainties and risks are associated with the fiscal and income policy stance, given the characteristics of the budget execution in the first five months of the year, as well as the recent or potential pay rises in the public sector, but also the fiscal measures that could be implemented in order to continue budget consolidation in line with the commitments under the excessive deficit procedure.
The Fed’s and the ECB’s monetary policy decisions, as well as the stance of central banks in the region continue to be relevant.