At the meeting on Wednesday, the BNR decided to keep the interest rate of the monetary policy at the level of 7 percent per year.

The interest rate on the credit line (pawnshop) – 8 percent per annum and the interest rate on the deposit – 6 percent per annum also remain unchanged.

At the same time, the current levels of mandatory minimum reserves for liabilities in lei and in foreign currency of credit institutions will be preserved.

“The updated forecast (which will be presented on Friday) generally confirms the coordinates of the previous medium-term forecast. Thus, the annual inflation rate is likely to continue to decrease along a trajectory almost similar to the one previously forecast, falling to the single-digit level in the third quarter of 2023 and in the area of ​​the target range at the end of the forecast horizon,” the BNR said in a statement.

• The decline will also be driven by supply-side factors, particularly the effects of a deflationary base and downward price adjustments for some commodities, as well as the expected impact of energy price cap schemes, as well as the expected impact of a narrowing of the outlook for excess aggregate demand, albeit at a slower pace than in to the previous forecast, which means its closure at the end of the forecast horizon.

At the same time, significant uncertainty and risks to the outlook for economic activity, implicitly the medium-term evolution of inflation, continue to be generated by the war in Ukraine and related sanctions, and others arise from turbulence in the US and Swiss banking systems. , which may have a negative impact mainly on the economies of developed countries and financing costs in Central and Eastern Europe.

• At the same time, the development of European funds, mainly those related to the next generation EU program, is conditioned by the fulfillment of clear goals and stages of project implementation. However, it is important to achieve the necessary structural reforms, including the energy transition, and to offset, at least partially, the contractionary impact of supply-side shocks exacerbated by tightening international economic and financial conditions.

“However, the increase in uncertainty and risks is related to the conduct of fiscal policy, taking into account, on the one hand, the budget deficit target set for 2023 for the continuation of budget consolidation in the context of the excessive deficit procedure and a significant increase in the cost of financing, and, on the other hand, the characteristics implementation of the budget in the first months of the year, as well as sets of support measures applied or extended in 2023, in a difficult domestic and global economic and social situation, with potentially negative consequences for the final budget parameters,” the BNR said in a statement.

Monetary policy decisions by the Fed and the ECB remain relevant, as well as the attitudes of central banks in the region.

Slowdown of the economy in the I and II quarters

The latest data and analysis indicate a moderate slowdown in economic growth in the first and second quarters of 2023, which implies a slight slowdown in the first three months of the current year compared to the same period in 2022, BNR reports.

“Thus, in January-February 2023, retail trade and especially services to the public continued to grow strongly compared to the same period in 2022, and sales of cars and motorcycles continued to gain momentum, while industrial production and – strengthened the contraction, and the volume of construction work slowed down significantly its growth,” the institution notes.

• At the same time, year-on-year fluctuations in exports of goods and services exceeded imports, which experienced a much more pronounced decline in the first two months of the year, probably also due to the improvement of the exchange rate. As a result, the trade balance deficit and the current account deficit significantly decreased compared to the same period last year.

Adjusted annual CORE2 inflation halted growth in the first quarter, as it rose below expectations in the first two months of the year and fell to 14.6% in March, according to the NBR, with the main disinflationary effects being lower prices for goods, primarily agro-food, and a downward adjustment of short-term inflation expectations.

• This fully offset the headwinds that continued to flow through the first quarter from the gradual pass-through to consumer prices of increased material costs and wage costs, as well as the maintenance of profit margins in the context of robust consumer demand. , but also from the increase in the price of some imported consumer goods.