The Board of the National Bank of Romania (BNR) upped the refinancing rate by 25bp to 1.75% in its November 9 meeting, surprising the market by an action milder than expected.

The monetary tightening cycle began last month with another 25bp hike.

But in addition to the 25bp hike, BNR decided to extend the symmetric corridor of interest rates on standing facilities around the policy rate to ±0.75 percentage points from ±0.50 percentage points. Thus, starting November 10 2021, the lending (Lombard) facility rate will be raised to 2.50% per annum from 2% per annum, while the deposit facility rate will be kept at 1.00% per annum. This is expected to push up the money market interest rates more than implied by the 25bp rate hike, possibly to 3%.

During the pandemic, Romania’s central bank has repeatedly cut the policy rate, halving it from 2.5% to 1.25% in January 2021. But the energy prices pushed up inflation around the globe, and BNR had to join the interest rate normalisation process to address the inflation that, expressed in headline terms (CPI inflation), climbed up to 6.3% in September. Its faster increase during Q3 was triggered especially by exogenous CPI components, much the same as in the first part of the year, reads BNR’s statement released along with the monetary board decision.

These decisions are circumscribed to the process of gradual normalisation of the monetary policy conduct that the BNR is carrying out, amid high uncertainties, the same as other central banks in the region.

At the same time, the BNR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

andrei@romania-insider.com

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