Central Bank tries to keep inflation in check

The National Bank of Romania increased its benchmark interest rate, to temper rising inflation.

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Eugen Coroianu, 11.01.2022, 13:50

The National Bank of Romania (BNR) has raised its benchmark interest rate to 2% per year from 1.75%, and decided to further retain firm control over money market liquidity. This is the third consecutive meeting of the Central Bank Board, which focused on raising the benchmark interest rate, in an attempt to keep inflation in check, which followed a higher-than-expected upward path. Experts have estimated that interest rates on bank loans for individuals and companies will go up, just like the interest rates on deposits, which are still at a very low level. BNR has also decided to maintain the present levels of the minimum reserves interest rates.

Dan Suciu, the Central Bank s spokesman, said on Radio Romania: “Unfortunately, inflation is worrisome, because we have witnessed increases of this indicator lately. This is not an issue only in Romania, but all over the world, being triggered mostly by the energy prices. We have all seen how the price of power, natural gas and fuels went up. This has a huge impact on the inflation index and it generates increases in other price categories. This is what inflation is, a general rise in prices. Unfortunately, the energy price accounts for more than 70% of our inflation index. The monetary policy decisions, taken by the Central Bank, such as the interest rate increase, have little effect on energy prices. However, what we are trying to do, which will be more visible in the second half of the year, is to anchor inflationist expectations, to alleviate the increase in the prices of other components. “

According to the BNR, the economic activity slowed down its growth considerably in the third quarter of 2021 to 0.4%, from 1.5% in the second quarter. At the same time, the GDP went down more than expected in the third quarter, but was still high due to private consumption and the unusual high stock fluctuation. Moreover, the inflation rate in September only partially corrected its strong increase in the previous two months, and was stabile in October, thus keeping its level above the pre-pandemic one. According to a Central Bank communiqué, the recent decisions are aimed at decreasing and keeping the annual inflation rate in line with the stationary target of 2.5% (+/- 1%), in a manner likely to contribute to sustainable economic growth. (EE)