Economy

As expected, the BNR kept the key interest rate at 7% per year on Tuesday, even though the inflation level is below the monetary policy rate.

10 essential points from the BNR press release:

• In 2023, the annual rate of inflation decreased by 9.76 percentage points (from 16.38% in December 2022), amid large, almost equal contributions from the declines in the dynamics of processed food prices and energy prices , the BNR press release shows.

• The latest data and analysis indicate a slight slowdown in economic growth in the fourth quarter of 2023 and the first quarter of 2024 compared to the third quarter of 2023, implying an acceleration of it in annual terms.

• Thus, compared to the average pace related to quarter III, in the first two months of quarter IV 2023, retail sales and services provided to the population reaccelerated their growth and industrial production mitigated its contraction in annual terms. The volume of construction work continued to increase at a double-digit annual rate, driven by developments in the engineering construction segment.

• On the labor market, the number of employees also stagnated in the October-November period, and the BIM unemployment rate remained relatively constant in the fourth quarter of 2023, but the double-digit annual dynamics of the unit labor cost in the industry increased sharply in November.

• Near-term employment intentions continued to decline sharply at the beginning of this year, and the labor shortage reported by companies increased very slightly, following the significant decrease recorded in the fourth quarter of 2023, and exclusively due to the evolution in the services sector.

• The credit granted to the private sector slightly increased its annual dynamics in December 2023, up to 6.4%, from 5.4% in November, once morest the background of the continued acceleration of the growth of the component in lei, but also in the conditions of the slowing down of the rate credit in foreign currency, mainly reflecting developments in the segment of non-financial companies. The share of the lei component in the credit granted to the private sector decreased marginally in December 2023, to 68.4%, from 68.5% in November.

• The BNR Board of Directors analyzed and approved the Inflation Report, February 2024 edition, a document that incorporates the latest available data and information. The updated forecast reconfirms the prospect of an increase in the annual rate of inflation at the beginning of the current year – under the impact of the increase and introduction of indirect taxes and fees – and of its subsequent decrease, but at a slower pace compared to 2023 and the previous projection.

• Thus, following likely rising in January to a noticeably lower level than previously forecast, the annual inflation rate is expected to decline in December 2024 to near the forecast value and reach the upper end of the target range at the end of next year.

• Significant uncertainties and risks remain associated with the future conduct of fiscal and revenue policy, having as sources the dynamics of wages in the public sector and the full impact of the new pension law, but also the additional fiscal-budgetary measures that might be implemented in the future in order to continue the consolidation budget, including in the context of the excessive deficit procedure and the conditionalities attached to other agreements concluded with the EC.

• The absorption of European funds, mainly those related to the Next Generation EU program, is essential for achieving the necessary structural reforms, including the energy transition