BNR: New evaluations reconfirm outlook of decrease in annual inflation rate in Q1

 The new evaluations reconfirm the outlook of a decrease in the annual inflation rate in the first three months of the current year, but on a higher trajectory than previously anticipated, according to a press release from the National Bank of Romania (BNR).The institution mentions that the decrease will be driven mainly by consistent base effects and the deceleration of the increase in import prices, but in the context of the persistence of the opposite effects exerted on the dynamics of food and energy prices by the unfavorable weather conditions in 2024 and the increase in the quotations of some goods, such as and the rise in energy consumption in the winter months.Significant uncertainties and risks arise from the future conduct of fiscal and revenue policy, given the implementation from the beginning of this year of the package of fiscal-budgetary measures recently approved for the purpose of budget consolidation in the context of the medium-term national budgetary-structural plan agreed with the Commission European Union and the excessive deficit procedure, the Central Bank says. The conditions on the labor market and the dynamics of salaries in the economy also remain sources of uncertainty and risks. At the same time, significant uncertainties continue to be associated with the evolution of energy and food prices, as well as the future trajectory of the oil price, against the backdrop of geopolitical tensions."Increased uncertainties and risks related to the outlook of economic activity, implicitly the medium-term evolution of inflation, are generated by the war in Ukraine and the conflict in the Middle East, as well as economic developments in Europe and globally, in the context of the escalation of geopolitical tensions. At the same time, the uptake and use of European funds, mainly those related to the Next Generation EU program, is conditioned by the fulfillment of strict targets and benchmarks. However, they are essential for achieving the necessary structural reforms, including the energy transition, but also for counterbalancing, at least partially, the contractionary effects of geopolitical conflicts", the BNR document also reads.According to the quoted source, the monetary policy decisions of the ECB and the Fed, as well as the attitude of the central banks in the region, are also relevant.Based on the evaluations and data available at this moment, as well as in the conditions of high uncertainties, the BNR's Board of Directors decided in Wednesday's meeting to maintain the monetary policy interest rate at the level of 6.50% per year. At the same time, it was decided to maintain the interest rate for the credit facility (Lombard) at 7.50% per year and the interest rate for the deposit facility at 5.50% per year. Also, the Board of Directors of the BNR decided to maintain the current levels of the mandatory minimum reserve ratios for liabilities in lei and in foreign currency of credit institutions.According to the BNR, Board decisions are aimed at ensuring and maintaining price stability in the medium term, in a way that contributes to the achievement of sustainable economic growth. The Board reiterates that, in the current context, the balanced mix of macroeconomic policies and the implementation of structural reforms, including the use of European funds to stimulate long-term growth potential, are essential for macroeconomic stability and strengthening the capacity of the Romanian economy to face developments adverse.The BNR specifies that it carefully monitors the developments of the domestic and international environment and is prepared to use the instruments at its disposal in order to fulfill the fundamental objective of medium-term price stability, under conditions of maintaining financial stability.The next meeting of the BNR's Board dedicated to monetary policy will take place on February 14, 2025.