In its meeting on 7 April 2005, the NBR Board analysed the latest developments of macroeconomic indicators and their prospects.
The trends in financial, monetary and economic indicators in the first few months of 2005 point to further fast-paced economic growth amid lingering inflationary pressures induced by both the aggregate demand and the hike in administered prices.
For 2005, the top priority is to slow down the rate of increase of domestic demand in order to support both the achievement of the 7 percent inflation target and the maintenance of the current account deficit at sustainable levels in the medium term.
The NBR Board considers realistic the continuation of disinflation provided an adequate economic policy mix is in place. Both the support of monetary and fiscal policies and the step-up in structural and institutional reforms are critical to the slowdown of the advance in domestic demand.
The analysis of the latest developments on the foreign exchange and money markets has underscored the further downtrend in interbank rates as well as in lending and deposit rates. Moreover, the exchange rate of the ROL remained relatively stable at significantly appreciated levels against the previous year, thereby impacting favourably domestic prices and inflation expectations.
The room for manoeuvre for the central bank's interest rate policy, given the risks associated with the current differential between domestic and international interest rates amid capital account liberalisation, allows the cut in the policy rate, which is expected to gradually near the market rate, insofar as progress in attaining the objectives of both disinflation and economic policy mix is made.
The NBR Board has decided to set the policy rate at 12.5 percent, two percentage points below the previous level.
Furthermore, the NBR Board has decided to lower both the interest rate on the lending facility, from 25 percent to 20 percent, and the interest rate on the deposit facility, from 5 percent to 4 percent.
The interest rate payable on ROL-denominated required reserves set up by credit institutions has been brought down to 2 percent from 4 percent while that on EUR-denominated reserves has been set at 0.7 percent from 1 percent. The penalty rate on reserve deficit in ROL has been cut to 30 percent from 37 percent.
The National Bank of Romania will keep an eye on economic and monetary developments so that, by resorting to adequate tools, to ensure maintenance of a cautious monetary policy stance needed to achieve the inflation targets for 2005 and 2006 (7 percent and 5 percent respectively) as well as on a longer time horizon.