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Financial News: Romania Central Bank Raises Key Rate Further

Romania Central Bank Raises Key Rate Further

07/06/2022 - 10:48:00 (RTTNews)

(RTTNews) - Romania's central bank raised its monetary policy rate more than expected on Wednesday amid rampant inflation due to increased prices for electricity and natural gas caused by the war in Ukraine and the related sanctions.

The board unanimously decided to raise the benchmark rate by a full percent to 4.75 percent from 3.75 percent, the National Bank of Romania said. Economists had forecast the rate to be raised to 4.50 percent.

The bank also lifted the lending facility rate and the deposit facility rate from 4.75 and 2.75 percent to 5.75 percent and 3.75 percent, respectively.

Previously, the bank raised its interest rates by 75 basis points on May 10.

The central bank has hiked interest rates in every policy session since October last year, when the key rate was at 1.25 percent.

Policymakers also decided to maintain firm control over money market liquidity.

The board decided to keep the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

In June, Romania's inflation accelerated to 14.5 percent in June from 13.8 percent in May.

The bank observed that the acceleration in annual inflation rate in the first months of the second quarter was further driven by global supply-side shocks that were amplified by the war in Ukraine and the sanctions imposed.

The central bank expects inflation to rise more than expected in the short run under the impact of supply-side shocks.

The hike in key rates aim 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 ±1 percentage point flat target on a lasting basis, the bank said.

In the medium term, the NBR said policymakers will continue to use tools to achieve the fundamental objective of price stability by closely monitoring developments in domestic and foreign markets.

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