Sursa foto: BCR
The National Bank of Romania (NBR) decided on Tuesday to raise the key interest rate to 1.50% per annum from the previous level of 1.25%, in an attempt to control the galloping inflation that has reached over 5% and could exceed the central bank’s target by the end of the year. Economists were not yet expecting an increase.
The Governing Council of the National Bank of Romania, meeting today, 5 October 2021, decided the following:
- To increase the monetary policy interest rate to 1.50 per cent per annum from 1.25 per cent per annum as of 6 October 2021;
- To increase the interest rate on the deposit facility to 1.00 per cent per annum from 0.75 per cent per annum and the interest rate on the lending facility (Lombard) to 2.00 per cent per annum from 1.75 per cent per annum with effect from 6 October 2021;
- Maintaining the current levels of reserve requirements for credit institutions’ liabilities in RON and foreign currency.
Economists had previously said they did not expect the NBR to raise interest rates at this monetary policy meeting, but to remain on hold, Economica.net wrote.
The key interest rate hike comes as the annual inflation rate climbed to 4.95 percent in July 2021 from 3.94 percent in June and to 5.25 percent in August, considerably above the upper limit of the target range and slightly above the forecast level. According to the NBR, the increase was again driven almost entirely by exogenous components of the CPI, most notably by the considerable increase in natural gas and electricity prices in July, and to a lesser extent by the continued rise in fuel prices, mainly on account of the non-gasoline and diesel categories.
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Interest rates are expected to start rising in the market after this decision to discourage credit and consumption, which fuel inflation.
Eastern Europe first to raise interest rates
The Czech National Bank (CNB) shocked the market last week by hiking its policy rate by 75 basis points, the biggest increase since 1997, and signaled that more hikes are to come as inflation exceeds the central bank’s 2% target.
Like most countries, the Czech Republic is also facing supply difficulties and rising transport and energy costs, along with strong demand after pandemic restrictions were relaxed earlier this year, pushing all prices up.
Other central banks in Europe, however, are slowing the pace of monetary tightening or keeping monetary policy loose, despite rapidly rising inflation coming amid a post-pandemic global recovery.
So far, Hungary is the only other EU nation to have started tightening monetary policy, but it slowed its pace last week.
Poland’s central bank has yet to raise its key interest rate, wary of getting in the way of an economic recovery.