In its meeting of May 2, 2013, the Board of the National Bank of Romania has decided the following:
- To keep unchanged the monetary policy rate at 5.25 percent per annum;
- To continue to pursue an adequate liquidity management;
- To leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
In order to temper interest rates volatility on the money and banking markets the NBR Board has decided to narrow the symmetrical corridor around the monetary policy rate for the interest rates on the NBR standing facilities to +/- 3 percentage points from +/- 4 percentage points.
Therefore, starting with May 3, 2013 the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 8.25 percent from 9.25 percent, while its deposit facility rate will stand at 2.25 percent per annum versus 1.25 percent previously.
The NBR Board has also examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for May 8, 2013.
The analysis of the latest developments in macro-economic indicators reveals ongoing disinflation, in line with the previous projections, on the back of the fading out of the transitory impact of supply-side factors, the improvement of inflation expectations, and of the persistence of the negative output gap.
The annual inflation rate fell to 5.25 percent in March 2013 from the previous month’s reading of 5.65 percent, remaining however above the upper bound of the variation band around the target and the 4.95 percent level seen in December 2012. The annual adjusted CORE2 inflation rate 1 further stayed on a downward trend, falling to 3.0 percent in March from 3.25 percent in December 2012. Monthly increases in consumer prices in February and March 2013 stood at historically low levels, reflecting the reduction in inflation expectations.
The GDP remains below potential owing to the evolution of its quarterly growth rate, the recent return to positive territory notwithstanding, including in the context of signals pinpointing the improved economic activity due mainly to the favourable evolution of exports and manufacturing. The real annual dynamics of lending to the private sector stayed in negative territory, similarly to credit developments in the euro area and in most countries in the region.
The resurgent tensions on the international financial markets amid the recent deepening of the eurozone crisis had limited spillover effects on the domestic economy, with Romania’s better performance boosting the resumption of capital inflows, as mirrored by the appreciation of the leu.
The monetary policy stance has remained prudent, seeking to firmly anchor inflation expectations. The NBR’s adequate calibration of the monetary policy instruments, including by shifting from firm to adequate liquidity management, led to an improvement of liquidity conditions on the money market and to a stronger transmission of the monetary policy impulse by bringing the interbank rates closer to the policy rate.
In the context of interbank rates and yields on government securities remaining on a downward trend, lending and deposit rates on new business resumed their decline. In this respect, the developments in 3M ROBOR – a benchmark for private sector financing – whose average level fell to 4.57 percent in April 2013 from 6.04 percent in December 2012 are highly relevant.
In today’s meeting, the NBR Board has examined and approved the quarterly Inflation Report, a document that assesses developments in the macroeconomic environment, looks at the inflation outlook, and identifies the main challenges and risks to monetary policy in the period ahead.
Compared to the previous projection, the updated forecast indicates an improved short-term disinflation outlook, anticipating the return of the inflation rate inside the target band in the second half of 2013, against the background of the persistence of the negative output gap.
The main risks and uncertainties surrounding the updated projection refer to the volatility of capital flows targeting the Romanian economy amid an external environment featuring fluctuations, as well as to the persistent structural rigidities across the Romanian economy, especially those highlighted by the precautionary financing agreements concluded with the international institutions.
In order to further accommodate the monetary policy with a view to effectively anchoring inflation expectations, the NBR Board has decided to keep unchanged the monetary policy rate at 5.25 percent per annum, to continue to pursue an adequate liquidity management and to leave unchanged the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
In order to moderate interest rate volatility on the money and banking markets, the NBR Board has decided to narrow the symmetrical corridor defined by interest rates on the NBR’s standing facilities to +/-3 percentage points from +/-4 percentage points. Therefore, starting with May 3, 2013 the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 8.25 percent from 9.25 percent, while its deposit facility rate will stand at 2.25 percent per annum versus 1.25 percent previously.
These decisions are aimed at further strengthening the transmission of the policy rate signal, which will have a favourable impact on the credit market in domestic currency, by gradually cutting the costs related to new loans.
The monetary policy stance further pursues the objective of price stability over the medium term under financial stability conditions and amid a lower adverse impact of external and domestic factors on the rebound of the domestic economy.
The NBR Board reiterates that the central bank closely monitors domestic and global economic developments so as, by gradually adjusting the monetary policy stance and adequately using its instruments, to ensure price stability over the medium term and financial stability, thus paving the way for sustainable growth.
The quarterly Inflation Report will be released to the public in a press conference on 8 May 2013. In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 1 July 2013.
1Calculated by excluding administered prices, volatile prices, as well as tobacco and alcohol prices from the consumer price index.
Video (Romanian only):
» Press briefing, 2 May 2013
» Press conference, 8 May 2013 - quarterly inflation report