In its meeting of January 6, 2009, the Board of the National Bank of Romania has decided the following:
- to maintain the monetary policy rate at 10.25 percent per annum;
- to pursue an adequate management of liquidity in the banking system, through the active use of open-market operations;
- to leave unchanged the existing minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.
The NBR Board is restating that the central bank will continue to closely monitor domestic developments and global economic evolutions so as to adequately adjust its instruments to ensure the achievement of its objectives related to both price stability and financial stability, in the context of a balanced macroeconomic policy mix.
The analysis of the latest macroeconomic developments shows a continuation of the disinflation process and a slowdown of economic growth amid lower investment expansion, especially in the construction sector, diminished industrial output and reduced export orders. The elevated uncertainties related to the magnitude of the impact of the international crisis on the Romanian economy are worth noting.
In November 2008, the annual inflation rate dropped to 6.74 percent from a peak of 9.04 percent in July, being still above the upper limit of the variation band around the 2008 target. The adjusted CORE2 inflation - calculated by excluding the impact of administered and volatile prices (vegetables, fruit, eggs and fuel) as well as the effect of vice tax - has also slowed, its annual rate falling to 6.4 percent in November.
On the other hand, the depreciation of the average annual leu-euro exchange rate (9.3 percent in 2008 compared to the previous year) is fueling inflationary pressures. These pressures are likely to remain high as the correction of the external deficit is ongoing and the adjustment of the domestic demand will proceed gradually.
As world financial market turmoil has deepened and investors' risk aversion has increased, the volatility of the leu exchange rate has intensified, in line with developments registered by other currencies in the region.
The annual increase in real terms of credit to the private sector has moderated under the impact of reduced access of banks to external financing, of a gradual reduction of the excess liquidity in the banking sector, as well as of increased prudence of banks amid growing uncertainties related to the effects of the global crisis on the Romanian economy.
The diminished external financing in the context of heightened global financial turmoil, along with increased public spending in the last months of 2008 have triggered a rise in interest rates, which remain at relatively high levels, well above the monetary policy rate. Therefore, the financing of the public deficit in this period, along with a continuation of the lending process require a gradual provision of adequate liquidity in the banking system in a manner that would not encourage exchange rate volatility.
Under these circumstances, the consolidation of disinflation and the ensuring of a sustainable financing of the Romanian economy amid heightened international financial market turmoil, require the maintenance of the present monetary policy stance in support of the formulation and implementation of a balanced macroeconomic policy mix. The implementation of the measures announced by the new government aimed at cutting the budget deficit simultaneously with a reorientation of public spending mainly towards investment and job creation are essential to support continued disinflation and a controlled adjustment of the external deficit, as prerequisites for achieving sustainable economic growth.
In light of the available data, the NBR Board has decided to maintain the monetary policy rate at 10.25 percent per annum, to pursue an adequate management of liquidity in the banking system, through the active use of open-market operations, and to leave unchanged the existing minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.
The NBR Board is restating that the central bank will continue to closely monitor domestic developments and global economic evolutions so as to adequately adjust its instruments in order to ensure the achievement of its objectives related to both price stability and financial stability, in the context of a balanced macroeconomic policy mix.
The next NBR Board meeting dedicated to monetary policy is scheduled on February 4, 2009, when the quarterly Inflation Report is to be examined.