November 8 (SeeNews) - Romania's central bank said on Tuesday it will increase its monetary policy rate to 6.75% from 6.25% as of November 9.
The central bank, BNR, also decided to increase the deposit facility rate to 5.75% per year from 5.25%, as well as the lending facility rate to 7.75% from 7.25%, it said in a statement after a board meeting on monetary policy.
The existing ratios of minimum reserve requirements for both leu-and foreign currency-denominated liabilities of banks will remain unchanged.
The key rate hike is BNR's seventh and last for this year.
The decision aims to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring back the annual inflation rate in line with the 2.5 percent plus/minus 1 percentage point flat target on a lasting basis, in a manner conducive to achieving sustainable economic growth, the bank said.
"At the current juncture, a balanced macroeconomic policy mix and the implementation of structural reforms inter alia by using EU funds to foster the growth potential over the long term are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments," the BNR added.
Romania's consumer prices rose by 15.88% on the year in September, compared to an increase of 15.32% year-on-year in August, the latest data from the statistics office showed.
According to the updated forecast, the annual inflation rate is expected to grow mildly until the end of 2022 and then embark on a gradual downward path, which is seen declining to one-digit levels in the first half of 2024 and steepening afterwards, the BNR added.
The escalation of the war in Ukraine and the related increasingly harsh sanctions generate, however, considerable uncertainties and risks to the outlook for economic activity, hence to medium-term inflation developments, through the possibly stronger effects exerted on consumer purchasing power and confidence, as well as on firms’ activity, profits and investment plans, the bank said.
The war might also affect more severely the European and global economy and the risk perception towards economies in the region, with an unfavourable impact on financing costs.
Furthermore, the absorption of EU funds, especially those under the Next Generation EU programme, is conditional on fulfilling strict milestones and targets for implementing the approved projects.
In BNR's view, major uncertainties and risks are associated, with the fiscal policy stance as well, given the requirement for further budget consolidation amid the excessive deficit procedure and the overall uptrend in the cost of financing. The characteristics of the upcoming budget revision in 2022 and the coordinates of the 2023 draft budget are important from this perspective, the bank noted.
The central bank's next monetary policy meeting will take place on January 10.
(1 euro=4.8912 lei)