In its meeting of May 4, 2010, the Board of the National Bank of Romania decided the following:
- to lower the monetary policy rate to 6.25 percent per annum from 6.5 percent starting with May 5, 2010;
- to ensure an adequate management of liquidity in the banking system;
- 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, which will be released to the public in a press conference scheduled for May 6, 2010.
The analysis of developments in macroeconomic indicators reveals a continued disinflation and an annual upward dynamics in exports as well as a current account deficit which remains at sustainable levels. At the same time, aggregate demand deficit and the declining annual lending to the private sector both persist.
The annual inflation rate dropped to 4.2 percent in March from 4.47 percent in February, coming down within the variation band around the target, mainly due to the favourable trends in food prices against the background of relatively low volatility of the leu exchange rate. The annual adjusted CORE2 inflation1 slid further, remaining below two percent.
In the monetary area, it is worth noting the continued downward trend of average interest rates on various segments of the domestic financial market following the successive cuts in the monetary policy rate and an improvement of liquidity in the banking system, while the adjustment of interest rates applied by credit institutions to non-bank customers is ongoing.
The monetary policy stance was aimed at ensuring real broad monetary conditions appropriate for a convergence of inflation towards medium-term objectives as well as for the sustainable revival of lending in the Romanian economy.
The updated forecast shows a continuation of disinflation but also a relative heightening of domestic risks related to the fulfilment of fiscal and incomes policy objectives in the public sector and of uncertainties related to developments in external markets amid recent tensions regarding the public finance crisis in Greece. These factors may complicate the recovery prospects for the Romanian economy.
In this context, the NBR Board has decided to lower the monetary policy rate to 6.25 percent per annum from 6.5 percent. Consequently, starting May 5, 2010, the rate on the deposit facility will be lowered to 2.25 percent per annum from 2.5 percent and the rate on the lending facility (Lombard) will be 10.25 percent per annum versus 10.5 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 15.5 percent starting with the May 24-June 23, 2010, maintenance period.
The NBR Board has also decided to pursue 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. The Report will be released to the public in a press conference scheduled for May 6, 2010.
The NBR Board reaffirms that further compliance with commitments set under the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions would ensure a consistent implementation of the macroeconomic policy mix, which is essential for 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 using 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.
According to the calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for June 30, 2010.
1) The adjusted annual CORE2 inflation rate is calculated by the NBR by excluding the administered and volatile prices (vegetables, fruit, eggs and fuel) as well as prices of tobacco and alcohol from the headline consumer price index.