During its session on May 13, 2024, the National Bank of Romania’s Board decided to maintain the monetary policy rate at 7.00 percent annually and to leave unchanged the lending (Lombard) facility rate unchanged at 8.00 percent annually and the deposit facility rate at 6.00 percent annually. The decision to keep the rate at 7 pc came despite expectations of the start of monetary policy easing. Central bank governor Mugur Isarescu had signaled that once installed on a sustainable trajectory of falling inflation, we could also see a first interest rate cut
At the same time, BNR maintained the current levels of minimum reserve requirement ratios for both leu- and foreign currency-denominated liabilities of credit institutions.
“The 12-month inflation rate fell to 6.61 percent in March 2024 from 7.23 percent in February, mainly following the slowdown in the growth rate of food prices.
Thus, in March the annual inflation rate returned to the level seen at end-2023, as the impact of the increases in the dynamics of electricity, fuel and tobacco product prices in 2024 Q1 overall was counterbalanced by the deceleration of core inflation and the decline in the dynamics of VFE price,” says the central bank’s monetary policy report.
According to BNR, The annual inflation rate calculated based on the Harmonised Index of Consumer Prices (HICP – inflation indicator for EU Member States) went down to 6.7 percent in March 2024 from 7.0 percent in December 2023.
Additionally, the average annual CPI inflation rate decreased to 8.5 percent in March 2024, down from 10.4 percent in December 2023. Similarly, the average annual HICP inflation rate declined to 8.3 percent in March 2024, compared to 9.7 percent in December 2023.
The latest statistical figures reaffirm a 0.5 percent decline in economic activity in Q4 2023 compared to the previous quarter. However, they also indicate an increase in its annual dynamics to 3.0 percent from 1.9 percent in Q3 2023.
According to the latest data, the rise in the annual GDP growth rate was driven by all domestic demand components, particularly by gross fixed capital formation, which nearly doubled its two-digit annual dynamics to 21.4 percent this quarter. Household consumption also significantly contributed, showing a re-acceleration in its year-on-year increase.
However, net exports witnessed a substantial renewed contraction in Q4 2023. This was due to a much more significant increase in the annual change in the import volume of goods and services, surpassing that of the export volume and consequently resulting in a trade deficit and an annual increase in the current account deficit. This increase was amplified by a marked worsening of the primary income balance. Nonetheless, for the overall year of 2023, both deficits notably narrowed compared to 2022, with the current account deficit-to-GDP ratio reducing to 7.0 percent from 9.2 percent.
The most recent data and analyses indicate a noticeable economic expansion in the early months of 2024 compared to Q4 of 2023. However, this coincides with a decrease in the annual GDP growth rate during this period, reflecting contrasting trends in aggregate demand components and key sectors.
During the first two months of this year, the annual growth rate of retail sales saw a notable increase, while the decline in motor vehicle and motorcycle sales slowed compared to the previous quarter’s average. Conversely, industrial output continued to contract year-on-year, although it showed a slight improvement in February. Meanwhile, the volume of construction works experienced a sharp decline compared to the same period last year, following six consecutive quarters of double-digit growth.
Furthermore, the annual growth rate of imports of goods and services continued to exceed that of exports, resulting in a slightly faster increase in the trade deficit between January and February 2024. However, the current account deficit saw a significantly slower annual growth rate, attributed to improvements in the secondary income balance due to inflows of EU funds to the current account.
Read the full report here.
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