In its meeting of January 5, 2012, the Board of the National Bank of Romania decided the following:
- to lower the monetary policy rate to 5.75 percent per annum from 6.00 percent starting with January 6, 2012;
- 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 will further monitor domestic and global economic developments so as, by accordingly adjusting 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 analysis of recent developments in macroeconomic indicators confirms a consolidation of disinflation, with the annual inflation rate falling to 3.44 percent in November 2011 amid favourable trends in volatile prices, the fading-out of the first-round effect of the VAT rate hike and the ongoing prudent monetary policy stance. The annual adjusted CORE21 inflation rate also fell, reaching 2.64 percent in November against 4.77 percent in March – the peak for 2011.
Recent central bank assessments show that in December 2011 the annual inflation rate will near the mid-point of the variation band around the 3 percent target, in line with the latest NBR forecast. They also reconfirm the prospects of a slowdown in both headline and core inflation rates, along with the downward adjustment in inflation expectations, in the coming months.
The recovery of the Romanian economy has continued – underpinned by favourable dynamics of exports, as well as of industrial and farming output – whereas the growing uncertainties regarding global and European growth amid a worsened global risk appetite and heightened sovereign debt crisis in the euro zone are hindering the short-term outlook for the overall economic activity in Romania.
At the same time, despite a mild advance in the past few months, the annual growth of credit to the private sector, mainly of leu-denominated loans, has remained relatively modest, also against the background of increased perception of risks related to the developments in the European banking sector.
As uncertainties regarding the external environment, capital flows, the trends in administered and some volatile prices persist, the prudent monetary policy stance will enhance the favourable prospects of the convergence of inflation towards the medium-term targets via an effective anchoring of inflation expectations, given that price stability is a precondition for achieving sustainable and lasting economic growth.
In this context, the NBR Board has decided to lower the monetary policy rate to 5.75 percent per annum from 6.00 percent. Thus, starting January 6, 2012, the annual interest rate on the deposit facility will be cut to 1.75 percent from 2.00 percent, while the overnight (Lombard) rate will be 9.75 percent a year versus 10.00 percent previously.
The NBR Board has also decided to further pursue an adequate management of liquidity in the banking system and keep unchanged the minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
Moreover, the NBR Board reaffirms that the gradual adjustment of monetary conditions will not only help resume robust economic growth, but also boost domestic savings, including the aim to support a sustainable external deficit and a lower dependence on external financing.
The NBR will continue to closely monitor domestic and global economic developments so as, by accordingly adjusting its available instruments, to ensure the fulfilment of its objectives of achieving price stability, as well as financial stability, and hence lasting economic growth in the context of fulfilment of commitments under the external financing agreements with the European Union, the International Monetary Fund and other international financial institutions.
In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy is scheduled for February 2, 2012, when the new quarterly Inflation Report is to be examined.
1 Calculated by the NBR by excluding administered prices, volatile prices, and tobacco and alcohol prices from the consumer price index.