In its meeting of November 2, 2012, the Board of the National Bank of Romania decided the following:
- To maintain the monetary policy rate at 5.25 percent per annum;
- To ensure the firm liquidity management 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 7 November 2012.
The annual inflation rate picked up in September 2012, reaching 5.33 percent from 3.88 percent in August 2012, mainly as a result of transitory unfavourable effects coming from domestic and global food prices, which added to the adverse statistical base effects and the local currency depreciation signalled in the previous NBR Reports. Nevertheless, the average consumer price increase over the last 12 months was 3.0 percent in September 2012, staying close to the European Union average.
The materialisation of risks highlighted by the central bank’s previous forecasts is also reflected, to a relatively lesser extent, by the evolution of the annual adjusted CORE21 inflation rate, which rose to 3.01 percent in September from 2.56 percent in the previous month.
The recent developments in relevant indicators show a relative slowdown in economic activity in the second half of the year amid a drought-induced drop in agricultural production and deteriorating growth prospects for global and European economic activity. The persistence of a considerable negative output gap is softening, however, the magnitude of the unfavourable impact of higher global commodity prices and leu exchange rate movements on inflation.
The external environment features a relative consolidation in investor confidence, as a result of measures implemented by major central banks. The global context remains nevertheless fraught with uncertainties surrounding the sustainable resolution of the euro area sovereign debt crisis and the European banking system developments.
The monetary policy stance has aimed to anchor inflation expectations in the context of the transitory inflation bout, of heightened volatility of capital flows and the developments in exchange rates. Under the circumstances, tightening liquidity management in the banking sector was reflected by the rise in interbank rates and their consolidation around the monetary policy rate. The expansion in lending to the private sector has further weakened, with a slowdown especially in the real annual growth of foreign currency credit.
In today’s meeting, the NBR Board has examined and approved the quarterly Inflation Report, which assesses developments in the recent macroeconomic environment, inflation and its outlook, and identifies the main challenges and risks to monetary policy in the period ahead.
According to the report, the projected annual inflation rate was subject to revision under the temporary unfavourable impact of severe supply-side shocks. Thus, the updated projection underscores the prospect for the annual inflation rate to exceed the variation band around the central target (3.00 percent for 2012 and 2.5 percent starting 2013) by the second half of 2013 and thereafter to return and consolidate inside the variation band.
The major risks associated with the new forecast relate to a potential increase in capital flow volatility, amid a possible deterioration of the external environment, entailing unfavourable consequences on emerging economies. The domestic electoral context in the period ahead can also overlap with these medium-term risks.
In this context and with a view to efficiently anchoring inflation expectations, the NBR Board has decided to keep the monetary policy rate unchanged at 5.25 percent per annum, to ensure a firm liquidity management 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 adjustment of the monetary policy stance aims to calibrate the monetary policy instruments in order to contain potential second-round effects of adverse supply-side shocks and to pave the way for the inflation rate to return inside the variation band around the central target over the medium term. This policy conduct, together with a consistent implementation of balanced macroeconomic policies, will create the necessary prerequisites for sustainable, lasting economic recovery.
In this context, the NBR Board restates that achieving price and financial stability objectives in the context of the ongoing fulfilment of commitments under the external financial arrangements with the European Union, the IMF and other international financial institutions, is crucial to support lasting economic growth.
The NBR closely monitors domestic and global economic developments so as to ensure, via an optimal dosage of its instruments, the fulfilment of its objectives to achieve price stability over the medium term and to maintain financial stability.
The quarterly Inflation Report will be released to the public in a press conference scheduled for 7 November 2012. In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 7 January 2013.
1 Calculated by the NBR by excluding administered prices, volatile prices, as well as tobacco and alcohol prices from the consumer price index.
Video (Romanian only):
» Press briefing, 2 November 2012
» Press conference, 7 November 2012 - quarterly inflation report