In its meeting of 5 February 2013, the Board of the National Bank of Romania decided the following:
- To keep the monetary policy rate unchanged at 5.25 percent per annum;
- To ensure adequate 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 NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference on 7 February 2013.
The annual inflation rate picked up to reach 4.95 percent in December 2012, remaining outside the variation band around the target and above the December 2011 reading of 3.14 percent. The annual inflation rate at end‑2012 was marginally below the latest NBR projection of 5.1 percent.
However, the average annual inflation rate kept falling to a 23-year low of 3.33 percent. The annual adjusted CORE21 inflation rate remained at 3.3 percent in December 2012 for the third consecutive month.
The path of the annual inflation rate in 2012 H2 shows the adverse impact of supply-side factors – beyond the scope of monetary policy –, largely the higher domestic and global food prices and administered price adjustments, against the background of sharper exchange rate volatility.
The magnitude of the adverse impact on inflation coming from these factors was however partially moderated by the persistence of a significant negative output gap. The statistical data suggest a near stalemate in economic activity in 2012 from the previous year amid a drought-induced drop in agricultural production and protracted euro area recession, which hurt Romania’s net exports and industrial output.
Monetary developments also pinpoint the real annual dynamics of loans to the private sector remaining in negative territory, similarly to credit developments in the euro area and the other countries in the region.
The prudent monetary policy stance throughout 2012 was aimed at anchoring inflation expectations via a steady dosage of the instruments available to the central bank and strengthening the prospects for the annual inflation rate to remain close to the medium-term target.
This, along with an improved investor perception on emerging economies, including on the local economy and financial market, amid the ongoing fiscal consolidation and the fading tensions associated with the electoral context, had a favourable bearing on the recent exchange rate developments.
The improved investor sentiment coupled with the shift to adequate liquidity management in the banking system caused money market rates and yields on government securities to decline and gradually near the monetary policy rate, thus strengthening the policy rate transmission.
In today’s meeting, the NBR Board examined and approved the quarterly Inflation Report, a document that assesses developments in the macroeconomic environment, sets forth the inflation outlook, and identifies the main challenges and risks to monetary policy in the period ahead.
According to the updated forecast, the annual inflation rate will reach again the upper bound of the target band by the end of the year following a short-lived pick-up in consumer price growth in 2013 H1, mainly as a result of larger administered price adjustments.
In line with the Report, risks and uncertainties surrounding the external developments, especially those associated with capital flow volatility, still remain, along with the domestic risks related to the persistence of some structural rigidities across the Romanian economy, to the wage‑productivity relationship, as well as to the dynamics of volatile and administered prices.
Against this background, with a view to effectively anchoring inflation expectations, the NBR Board decided to keep the monetary policy rate unchanged at 5.25 percent per annum, to ensure adequate 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 decisions are aimed to ensure the resumption and the subsequent consolidation of disinflation, thus creating the necessary prerequisites for a gradual recovery of lending to the Romanian private sector and sustainable economic growth in the new European and global context.
An optimal dosage of the instruments available to the central bank, along with the implementation of a consistent macroeconomic policy mix and structural reforms, pursuant to the commitments assumed under the arrangements with international institutions, is essential to achieve price and financial stability in the medium term and thus support the nominal and real convergence.
The NBR Board reaffirms that it will closely monitor domestic and global economic developments so as, by adjusting its available instruments accordingly, to ensure price stability over the medium term, as well as financial stability.
The quarterly Inflation Report will be released to the public in a press conference on 7 February 2013, along with a 12-month calendar of NBR Board meetings dedicated to monetary policy issues.
1 Calculated by excluding administered prices, volatile prices, and tobacco and alcohol prices from the consumer price index.
Video (Romanian only):
» Press briefing, 5 February 2013
» Press conference, 7 February 2013 - quarterly inflation report