The recent and anticipated decline in the annual inflation rate to a significantly lower trajectory than previously expected, along with ongoing uncertainties regarding long-term developments, justifies a prudent reduction in the monetary policy rate.

This was the consensus among the Board members of the National Bank of Romania (BNR) during the monetary policy meeting on July 5, when they unanimously decided to cut the monetary policy rate from 7% to 6.75%. 

"The measure aims to ensure and maintain medium-term price stability in a manner that contributes to sustainable economic growth. In this context, the importance of continued careful monitoring of domestic and international developments to adjust BNR's tools to meet the fundamental objective of medium-term price stability while maintaining financial stability was reiterated," reads the document. 

The Board members highlighted the uncertainties and increased risks arising from fiscal and income policies in 2024, based on the budget execution in the first five months of the year, public sector wage dynamics, and the full impact of the new pension law. 

They also noted the significant risks associated with these policies in the longer term, in the context of potential fiscal and budgetary measures aimed at achieving fiscal correction and positioning the budget deficit on a sustainable downward trajectory, compatible with the requirements of the excessive deficit procedure and the conditions attached to other agreements with the European Commission, as emphasized in the document published by the central bank on Wednesday.

andrei@romania-insider.com

(Photo source: Vlad Ispas/Dreamstime.com)