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The prolongation of the war in Ukraine and the extension of the sanctions imposed on Russia generate considerable uncertainties and risks from the perspective of economic activity in Romania, implicitly of the medium-term evolution of inflation, the minutes of the monetary policy meeting of the Board of the National Bank of Romania of July 6, 2022 read.
The document published on Monday states that the prolongation of the conflict could have effects on multiple levels on purchasing power and consumer confidence, as well as on the activity, profits and investment plans of companies, but also through the potentially more severe damage to the European/global economy and risk perception on the region's economies, with an unfavorable impact on financing costs.
"In this context, making the most of European funds allocated to Romania, especially those related to the Next Generation EU program, is vital, maintained the Board members, attracting them being essential for accelerating structural reforms, including the energy transition - given the nature conditionalities attached to the process - but also for counterbalancing, at least partially, the contractionary impact of large global shocks on the supply side, as well as the effects of fiscal consolidation," the cited document states, Agerpres.ro informs.
In the discussions on recent inflation behavior, the Board members showed that the annual inflation rate has accelerated its growth in the first two months of the second quarter more than expected, given a broad jump registered in April to 13.76 percent from 10.15 percent in March, followed by a moderate advance in May to 14.49 percent.
As regards future developments, the Board members have indicated that, according to new estimates, the annual inflation rate will continue to rise until the middle of the third quarter, but at a visibly slow pace, thus rising moderately above the values highlighted in the short-term horizon by the most recent medium-term forecast. It was recalled that the May forecast was anticipating a peak of inflation dynamics of 14.2 percent in June 2022, followed by a gradual decline only over the course of four quarters, but subsequently more alert, implying its decline to one-digit levels only in the first half of the second quarter of 2023 and its keeping above the target range at the end of the forecast horizon, at 6.2 percent.
At the beginning of this month, the BNR Board decided unanimously to increase the monetary policy interest rate to 4.75 percent from 3.75 percent. At the same time, it was decided to increase the interest rate for the credit facility (Lombard) to 5.75 percent, from 4.75 percent and to increase the interest rate on the deposit facility to 3.75 percent, from 2.75 percent.
