It also decided to start narrowing the standing facilities corridor to +/-1.25 percentage points from +/- 1.5 points around the key rate.
Starting October 4, the central bank will be raising its interest for deposit facilities to 0.5% a year and lowering the lending facility interest (the Lombard rate) to 3%.
The central bank said in a follow-up detailed statement the annual inflation rate continued to rise in the first two months of the third quarter, posting a significant increase in July (to 1.42%t from 0.85% percent in the previous month), before slowing down to 1.15% in August, slightly lower than forecast. It said the rise was driven by administered prices, following the electricity price hike, while also being supported by fuel price developments amid the pick-up in international oil prices, as well as by faster core inflation.
Statistical data on economic growth in the second quarter of 2017 show a faster-than-expected pick-up in the annual dynamics of real GDP – 5.9% compared with 5.7% in the previous quarter. The evolution owed entirely to domestic demand – private consumption expanded by 7.4% (contributing 5.3 percentage points to GDP growth), under the impact of fiscal and wage measures and the improvement in employment, whereas gross fixed capital formation returned to positive territory (2.4%, making a 0.6 percentage point contribution).
Towards the end of the third quarter, interbank money market rates saw a pronounced upward trend, nearing the policy rate, in the context of the significant upward revision of inflation expectations, stronger expectations on the calibration of the monetary policy stance, as well as amid liquidity fluctuations, under the influence of the autonomous liquidity factors.
The annual dynamics of private lending gained substantial momentum, reaching a five-year high of 6.5% in August, amid stronger new loan flows, alongside a contraction in the sales of non-performing loans. The share of leu-denominated credit in total private sector loans continued to widen to 61%, certifying the improvement in monetary policy transmission.
The latest assessments reconfirm the outlook for a further increase in the annual inflation rate over the months ahead, the central bank said. The uncertainties and risks associated with this outlook are, however, influenced by the fiscal and income policy stance, as well as by the prospects of administered prices (of natural gas, electricity) and volatile food prices.
Romania’s central bank board holds its next monetary policy meeting on November 7, 2017, when it will also examine a new quarterly inflation report.