Romania’s central bank, in its August 6 monetary board meeting, maintained the refinancing rate at 1.25%, “in light of the elevated uncertainty” and also kept the interest rates corridor at +/-0.5pp.

The decisions aim to preserve price stability “in a manner conducive to achieving sustainable economic growth” in the context of the fiscal consolidation process while safeguarding financial stability, says the National Bank of Romania.

The sources of uncertainty are two, namely the evolution of the pandemic and the Government’s policies in the areas of fiscal consolidation and absorption of European funds.

The BNR also places the Government’s ongoing budget revision, the medium-term fiscal consolidation plan (expected by the European Commission this October) and the fate of the Resilience Plan in the area of uncertainties relevant for the monetary policy decisions.

While the health situation indeed generates risks supporting a more conservative approach in the interest rates normalisation process, the fiscal policies have not justified so far BNR’s caution (yet they have this potential).

Namely, amid expectations for a 6.2%-of-GDP budget deficit this year expressed by the CFA analysts recently, prime minister Florin Citu hasn’t yet announced plans to revise downward the 7.16% deficit target set under much harsher economic conditions at the beginning of the year.

Separately, the updated inflation scenario shows a higher path of the projected annual inflation rate over the next two years, with the indicator being again revised considerably upwards in the short term and to a lower extent in the latter part of the projection horizon. The quarterly Inflation Report will be published on August 9.

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iulian@romania-insider.com