The annual inflation rate will continue to go down in the coming months along a significantly lower trajectory than the one anticipated in the central bank's May 2024 medium-term forecast, mainly under the influence of base effects and legislative changes in the field of energy, as well as against the backdrop of the slowdown in import prices and the gradual downward adjustment of short-term inflationary expectations, the National Bank of Romania said in a release, highlighting labor market conditions, the dynamics of wages, the expected impact of the recent law changes on gas and electricity prices, as well as the evolution of oil quotations as a steady source of significant uncertainties and risks
The war in Ukraine and the conflict in the Middle East, as well as the economic developments in Europe, especially in Germany, continue to generate uncertainties and risks regarding economic outlooks, and implicitly on the medium-term evolution of inflation. At the same time, the absorption of European funds, mainly those under the Next Generation EU program, is conditional on the fulfillment of strict targets and benchmarks, but is essential for achieving the necessary structural reforms, including the energy transition, but also for counterbalancing, at least partially, the contractionary effects of geopolitical conflicts.
BNR's Board decided at its July 5 meeting to slash the key interest rate to 6.75% per annum from 7.00% per annum starting on July 8, 2024. Also, the Board decided to reduce the lending facility interest rate (Lombard) at 7.75% per annum from 8.00% per annum, and to cut the deposit facility rate to 5.75% per annum from 6.00% per annum, while maintaining the minimum reserve requirement ratios on both RON- and foreign currency-denominated liabilities of credit institutions unchanged, the central bank's release states.
The decisions of the BNR's Board are aimed at ensuring and maintaining the stability of prices in the medium term, in a manner that contributes to the achievement of sustainable economic growth. The Board reiterates that, in the current context, the balanced mix of macroeconomic policies and the implementation of structural reforms, including the use of European funds to stimulate long-term growth potential, are key for macroeconomic stability and for strengthening the capacity of the Romanian economy to face adverse developments.
The next meeting of the BNR Board dedicated to the monetary policy is scheduled for August 7, 2024.
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