In its meeting of August 3, 2011, the Board of the National Bank of Romania decided the following:
- to keep unchanged the monetary policy rate at 6.25 percent per annum;
- to ensure 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 on August 8, 2011.
In June 2011, the annual inflation rate fell to 7.93 percent (which still includes the first-round effect of the standard VAT rate increase) from 8.41 percent in May, as a result of lower volatile food prices. However, the annual adjusted CORE21 inflation rate remained at 4.7 percent, unchanged ever since April 2011, its deceleration being affected by an inertial pass-through of previous adverse shocks and by a base effect related to processed food products.
The favourable trends in volatile food prices combined with the fading out of the impact of July 2010 VAT rate hike are forecast to trigger faster disinflation in the coming months.
According to the latest available data, industrial output and exports stayed on an upward path. However, the negative output gap still persists while the revival of lending to the private sector, mainly centered on corporates, remains modest also in the context of heightened risks related to eurozone sovereign debt crisis and signals regarding a relative slowdown in the eurozone recovery.
The NBR Board has examined and approved the quarterly Inflation Report, a document that assesses the recent macroeconomic context, investigates the inflation outlook and identifies the main challenges and constraints to monetary policy in the period ahead.
The updated projection of macroeconomic developments reveals an improvement of the short-term inflation outlook as the VAT hike impact is fading out, in line with NBR expectations regarding the end of the cycle of supply-side shock effects that affected the economy, the relative easing of pressures from international food prices, and given the expected positive impact of the domestic agricultural supply.
In the medium-term, upside risks to inflation remain significant, coming mainly from the timing and magnitude of administered price adjustments, the volatility of capital flows amid developments in the sovereign debt crisis in the European Union and the United States, as well as uncertainties regarding the evolution of global commodity prices.
In this context, the NBR Board decided to leave unchanged the monetary policy rate at an annual 6.25 percent, to continue 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- and foreign currency-denominated liabilities of credit institutions.
The monetary policy stance is thus aimed at preserving adequate broad monetary conditions so as to ensure a solid anchoring of inflation expectation and enhance the convergence of inflation towards the established medium-term targets.
Moreover, as risks related to a prolongation of the sovereign debt crisis persist, the consistent implementation of commitments agreed by the Romanian authorities under the external financing agreements with international institutions, especially those regarding fiscal consolidation and the wage-productivity correlation, is essential to ensure a sound recovery of the economy in the context of the nominal and real convergence process. Against this background, a continued prudent monetary policy stance is needed not only to tackle the significant upside risks to inflation, but also to address the possible increased capital flow volatility in emerging economies.
The NBR reiterates that the central bank will monitor domestic and global economic developments so as, via an adequate use of 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.
The quarterly Inflation Report will be released to the public in a press conference scheduled for August 8, 2011. According to the calendar of NBR Board meetings dedicated to monetary policy issues, the next meeting is scheduled for September 29, 2011.
1) Calculated by the NBR by excluding administered prices, volatile prices, and tobacco and alcohol prices from the consumer price index.