Romania's central bank left its monetary policy rate at 1.75 percent as it retains stimulative monetary conditions amid domestic and external risks to the inflation outlook and "stands ready to use all its available tools during this period of heightened uncertainty."
The National Bank of Romania (NBR), which has maintained its rate since May 2015, said the external environment was marked by risks to growth in the euro area, challenges to the European banking system, Brexit negotiations along with the price of oil and other commodities.
But credit to the private sector picked up slightly in October and November due to loans to non-financial companies while the share of leu-denonominated credit rose further to 56.9 percent by the end of November.
"These developments certify the improvement in monetary policy transmission, while also helping mitigate the risks to financial stability," the NBR said.
The latest assessments of inflation confirm that inflation should re-enter positive territory in the first quarter of 2017 and continue to rise amid the fading of transitory impact of the cut in Value-Added-Tax to 20 percent from 24 percent.
"However, the annual inflation rate is expected to stand lower than the level highlighted in the latest medium-term forecast," the central bank added.
In November the central bank raised its forecast for 2017 inflation to 2.1 percent from 2.0 percent while the 2016 forecast was unchanged at minus 0.4 percent. The central bank targets inflation of 2.5 percent, plus/minus 1 percentage point.
Romania's headline inflation rate fell to minus 0.7 percent in November from minus 0.4 percent in October for the 18th consecutive month of deflation. The BNR attributed the fall to slower rises in tobacco prices and the impact of price cuts on compulsory third-party liability insurance policies.
Romania's economy lost momentum in the third quarter, the central bank said, pointing to Gross Domestic Product growth easing to an annual rate of 4.4 percent, down from 6.0 percent in the second quarter, as the negative contribution of net exports narrowed in light of a much sharper fall in the growth of imports as compared with that of exports.
The National Bank of Romania issued the following statement: