The National Bank of Romania (BNR) announced a reduction in its monetary policy interest rate (chart) on August 7, bringing it down to 6.50% per annum from 6.75%. 

This decision is a continuation of the monetary easing strategy initiated in July, when the rate was reduced from 7% per annum, a figure that had remained unchanged since January 2023.

In addition to the main policy rate adjustment, the BNR also lowered the lending facility (Lombard) rate to 7.50% from 7.75% per annum and the deposit facility rate to 5.50% from 5.75% per annum. The central bank chose to maintain the current levels of mandatory minimum reserve rates for credit institutions' liabilities in both local currency (lei) and foreign currency.

The BNR's press release explained the rationale behind these decisions: "Considering the significant improvement in the near-term perspective of inflation in relation to the previous forecast, but also in the conditions of the still high uncertainties associated with the forecasts on the more distant time horizon, the Board of Directors of the BNR decided to reduce the monetary policy interest rate to the level of 6.50 percent per year, from 6.75 percent per year, starting on August 8, 2024."

The central bank's updated forecast indicates a continuation of the decline in the annual inflation rate, with expectations that it will follow a lower trajectory than previously projected, particularly in the near term. 

"The annual inflation rate is expected to decrease at the end of the current year and in the first quarter of 2025 to significantly lower values than previously forecast, and after a temporary increase in the second quarter of 2025 to return and remain until the end of the projection horizon slightly below the upper limit of the target range, implicitly at somewhat lower levels than those in the previous forecast," the statement said.

However, the BNR acknowledged several uncertainties and risks, particularly concerning fiscal and revenue policies, labour market conditions and wage dynamics. Additional uncertainties are tied to the evolution of energy and food prices, influenced by legislative changes, prolonged drought and geopolitical tensions affecting crude oil prices.

Ahead of the meeting, analysts’ expectations for a new rate cut moderated as the global turmoil deepened recently. There was a lack of consensus on the next step the BNR, which initiated the monetary easing cycle in July, would take at its August 7 board meeting.