NBR raised the monetary policy rate to 2.25 percent

The annual inflation rate climbed to 3.32 percent in December 2017 from 3.23 percent in November, above the forecasted level declared Mugur Isarescu, the governor of the National Bank of Romania . The evolution was mainly driven by the acceleration of basic inflation and, to a lesser extent, the volatility of food prices and tobacco prices.

Revised data on economic growth in the third quarter of 2017 reconfirmed high real GDP growth of 8.8 percent shows the NBR in a press release. The major determinant of this evolution was the consumption of households (8.3 percentage points), whose annual dynamics increased considerably, the level reached (12.5%) being similar to those of the pre-crisis period. The expansion in consumption was driven by revenue growth measures implemented from 1 July 2017, which overlapped with favorable financial conditions and the stimulating labor market context. A positive contribution to economic growth came in the third quarter and gross fixed capital formation (2.1 percentage points).

The contribution of net exports to GDP growth continued to be negative. The current account deficit accelerated its annual growth rate amid the steepening of the negative balance of goods.

The statistical data for the first two months of the fourth quarter of 2017 reveal the upward trend of industrial production accompanied by the dynamics of new orders in the manufacturing industry, as well as the maintenance of high growth rates in trade and services, amid the real net average wage. The trade deficit has accentuated the unfavorable evolution, as the annual growth rate of imports continued to be higher than that of exports.

Credit to the private sector continued its robust growth in December 2017, at an annual rate of 5.6 percent, as the RON component increased in annual terms by 15.8 percent; its share in total credit increased to 62.8 percent (from a minimum of 34.6 percent in May 2012).

The NBR Board of Directors reviewed and approved the February 2018 Inflation Report, a document that incorporates the latest data and information available. The new scenario of the forecast highlights the prospect of increasing the annual inflation rate in the coming months, followed by a moderation in the latter part of 2018. Thus, compared to the previous report, the projected annual inflation rate was revised upwards in the short term , mainly due to the relative intensification of recent and anticipated supply-side inflationary pressures, coupled with pressures from fundamental factors.

The uncertainties and risks associated with this perspective are mainly driven by fiscal and income policy, labor market conditions, and administered prices.

Externally, uncertainties and risks related to the volatility of international financial markets, oil and agri-food product developments, as well as the pace of economic expansion of the euro area and globally, including the normalization of monetary policies of major central banks, are relevant.

Given current assessments, current information and new sources of uncertainty, the NBR Board of Directors has decided to raise the monetary policy rate to 2.25 percent per annum from 2.00 percent per year; at the same time, decided to increase the interest rate for the deposit facility to 1.25 percent per annum and to raise the interest rate on the Lombard facility to 3.25 percent per annum. The NBR Board also decided to keep current levels of minimum reserve requirements for credit and credit institutions' liabilities in foreign currency and in foreign currency.

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