In its meeting of November 3, 2009, the Board of the National Bank of Romania decided the following:
- to keep unchanged the monetary policy rate at 8.0 percent per annum;
- to ensure a firm management of liquidity in the banking system in order to consolidate the transmission of monetary policy signals;
- to maintain the existing level of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.
The NBR Board has set the annual inflation target for 2011 at 3.0 percent, ±1 percentage point variation band, down from 3.5 percent in 2010. The target will be discussed with the government.
The NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for November 6, 2009.
The analysis of macroeconomic indicators developments reveals a consolidation of disinflation with a certain lag, a persistent economic contraction and an ongoing significant adjustment of the external deficit, along with a worsening of foreign investors’ perception regarding the Romanian economy amid heightened tensions in the domestic political field.
The annual inflation rate slid marginally to 4.94 percent in September from 4.96 percent in the previous month due to increases in excise duties on tobacco and moderate fluctuations of the leu exchange rate. The adjusted annual CORE2 inflation – calculated by excluding the impact of administered and volatile prices (vegetables, fruits, eggs and fuel) as well as of the prices of major items subject to excise duties, i.e. tobacco and alcohol – fell to an annual rate of 4.2 percent in September from 4.5 percent a month before.
In the monetary area it is worth noting the reduction in annual terms of credit to the private sector, especially of the leu-denominated component, as well as the fast annual dynamics of government credit. Meanwhile, the spread between interbank money market rates and the monetary policy rate widened in the context of a heightened impact on the money market of the substantial budget deficit financing needs for the last quarter of this year.
The monetary policy stance continued to be prudent, the successive previous adjustments of the monetary policy rate and the firm management of liquidity seeking to ensure adequate broad monetary conditions with a view to consolidating the convergence of inflation towards medium-term objectives and a sustainable revival of lending activity in the economy as a whole.
Nevertheless, in the short-run, inflationary pressures due to an anticipated upward adjustment of excise duties starting with January 1, 2010, the persistence of the spread between interbank rates and the monetary policy rate as well as the unfavourable impact on expectations coming from heightened risks related to fiscal and income policies, given the volatile political climate, are to be expected .
Under these circumstances, preserving the prospects of a return of the inflation rate close to the established medium-term targets and anchoring inflation expectations require the maintenance of a prudent monetary policy stance. Moreover, in order to ensure the sustainability of this process and pave the way for a lasting economic relaunch, a rapid fulfilment by the other components of the macroeconomic policy mix of the commitments under the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions, is necessary.
In light of the available data and of the assessment of recent and upcoming developments, the NBR Board has decided to keep unchanged the monetary policy rate at 8.0 percent per annum. The NBR Board also decided to ensure a firm management of liquidity in the banking sector in order to consolidate the transmission of monetary policy signals and a return of the interbank rates in the vicinity of the monetary policy rate, as well as to maintain the existing level of minimum reserve requirements ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board has also set the annual inflation target for 2011 at 3.0 percent, ±1 percentage point variation band, down from 3.5 percent in 2010. The target will be discussed with the government.
The NBR Board has examined and approved the quarterly Inflation Report, a document that assesses the recent macroeconomic environment and the inflation outlook, and identifies the main challenges and risks to monetary policy in the coming period. The Report will be presented to the public in a news conference scheduled for November 6, 2009.
The NBR Board believes a firm implementation of the macroeconomic policy mix – monetary, fiscal and income- as well as of the structural reforms agreed under the multilateral external financing arrangement are essential for achieving disinflation objectives, restoring investors’ confidence, ensuring a sustainable financing of the Romanian economy as well as creating conditions for a lasting economic recovery.
The NBR Board reiterates that the central bank will continue to closely monitor domestic and global economic developments so as, by using its available instruments, to ensure the fulfillment of its objectives of achieving and maintaining price stability in the medium term as well as financial stability.
In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for January 5, 2010.