In its meeting of February 3, 2010, the Board of the National Bank of Romania decided the following:
- to lower the monetary policy rate to 7.0 percent per annum from 7.5 percent starting with February 4, 2010;
- to ensure an adequate management of liquidity in the banking system;
- 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 examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for February 5, 2010, along with a 12-month calendar of NBR Board meetings dedicated to monetary policy issues.
The annual inflation rate stood at 4.74 percent in December 2009, 0.24 percentage points above the upper limit of the variation band around the target, mainly due to increases in excise duties on tobacco and fuel prices, but was below the 6.3 percent level recorded at the end of 2008.
The annual adjusted CORE2 inflation – calculated by excluding the impact of administered prices and volatile prices (vegetables, fruit, eggs and fuel) as well as of the prices of major items subject to excise duties, i.e. tobacco and alcohol – continued the downward trend started in April 2009, dropping to 2.8 percent in December 2009 from 6.3 percent in the same 2008 period.
The analysis of developments in macroeconomic indicators reveals a persistent deficit of aggregate demand, a consolidation of the current account deficit at sustainable levels as well as the continued slowdown in real terms of the annual dynamics of lending to the private sector, while the growth of government credit stayed high.
Meanwhile, the leu strengthened versus the euro due to an improved perception of foreign investors towards the Romanian economy amid the reactivation of the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions and an increase in global risk appetite.
The monetary policy stance remained prudent, seeking to pro-actively ensure that broad real monetary conditions are appropriate for a convergence of inflation towards medium-term objectives as well as for the sustainable revival of lending in the Romanian economy.
The outlook indicates the continuation of disinflation despite a temporary pick-up in inflation in January under the impact of the exogenous shock coming from excise duties on tobacco, as the favorable dynamics in the adjusted CORE2 inflation – which better reflects the impact of aggregate demand management – is set to continue. The persistence of uncertainties related to trends in the global economy, capital flows, administered prices and volatile prices are also worth mentioning.
In this context, the NBR Board has decided to lower the monetary policy rate to 7.0 percent per annum from 7.5 percent. Consequently, starting February 4, 2010, the rate on the deposit facility will be lowered to 3.0 percent per annum from 3.5 percent and the rate on the lending facility (Lombard) will be 11.0 percent per annum versus 11.5 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 16.5 percent starting with the February 24-March 23, 2010, maintenance period.
The NBR Board has also decided to ensure an adequate management of liquidity in the banking system and to maintain the existing levels of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.
The NBR Board has examined and approved the quarterly Inflation Report, a document that assesses evolutions in the recent macroeconomic environment and the inflation outlook, and identifies the main challenges and risks to monetary policy in the coming period.
Therefore the NBR Board reaffirms that a firm implementation of the economic policy mix – monetary, fiscal, income and structural reforms – agreed under the multilateral external financing arrangement are essential for further achieving sustainable disinflation, maintaining financial stability and restarting a lasting economic recovery.
The NBR will continue to closely monitor domestic and global economic developments so that, by an appropriate and prompt use of its available instruments, to ensure the fulfilment of its objectives of achieving and maintaining price stability in the medium term as well as financial stability.
The quarterly Inflation Report will be released to the public in a press conference scheduled for February 5, 2010, along with a 12-month calendar of NBR Board meetings dedicated to monetary policy issues.