Romania’s central bank makes new monetary policy rate cut amid economic adjustments
<p>On August 7, 2024, the Board of the National Bank of Romania (NBR) decided to cut the monetary policy rate from 6.75% to 6.50%, effective from August 8, 2024. This decision also included lowering the lending (Lombard) facility rate to 7.50% from 7.75% and the deposit facility rate to 5.50% from 5.75%. The minimum reserve requirement ratios on both RON- and foreign currency-denominated liabilities of credit institutions remain unchanged.</p>

<p><a href="https://www.bnr.ro/page.aspx?prid=24841">The NBR decision</a> was primarily motivated by the continuing decline in the annual inflation rate, which fell to 4.94% in June 2024 from 5.12% in May. This reduction was driven by decreases in core inflation and fuel prices, though somewhat offset by rising natural gas prices. The inflation rate had also seen a notable drop from 6.61% in March 2024, largely due to falling energy prices and decelerating food price growth.</p>

<p>The annual adjusted CORE2 inflation rate also declined faster than expected, dropping to 5.7% in June from 7.1% in March 2024. This reduction was attributed to disinflationary base effects, downward corrections of commodity prices, decreasing import prices, and short-term inflation expectations. However, unit labor costs increased in early 2024, contributing to some consumer price rises amid strong demand for goods.</p>

<p>Economic activity in Romania showed mixed signals. GDP growth in Q1 2024 was modest at 0.7% compared to Q4 2023 and 0.5% compared to Q1 2023, with a significant contraction in gross fixed capital formation. Yet, economic indicators suggested a more robust growth in Q2 2024, with increases in retail sales, motor vehicle sales, and construction output.</p>

<p>The labor market experienced fluctuations, with a sharp contraction in employee numbers in May 2024 following a substantial rise in April. The unemployment rate gradually increased to 5.5% by June, slightly below the 2023 H2 average of 5.6%.</p>

<p>The NBR's rate cut aims to maintain price stability and support sustainable economic growth. The decision reflects improved near-term inflation prospects but acknowledges ongoing uncertainties from fiscal policies, wage dynamics, energy prices, geopolitical tensions, and economic conditions in Europe.</p>

<p>The NBR remains vigilant and ready to adjust its policies to ensure medium-term price stability and financial stability. The next monetary policy meeting is scheduled for October 4, 2024.</p>

<p><em>editor@romania-insider.com</em></p>

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