In its meeting of 1 July 2013, the Board of the National Bank of Romania decided:
- To lower the monetary policy rate to 5.00 percent per annum from 5.25 percent per annum starting 2 July 2013. Also starting with 2 July 2013, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 8.0 percent from 8.25 percent, while its deposit facility rate will stand at 2.0 percent per annum versus 2.25 percent previously;
- To ensure adequate liquidity management in the banking system;
- To maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR closely monitors domestic and global economic developments so as, via the gradual adjustment of the monetary policy conduct and the adequate use of its instruments, to achieve price stability over the medium term and financial stability.
The analysis of the latest macroeconomic data reveals that inflation posted developments in line with the central bank’s previous projections and that the negative output gap has persisted, the faster economic growth notwithstanding.
In May 2013, the annual inflation rate measured by the consumer price index calculated by the National Institute of Statistics based on the domestic methodology stood at 5.32 percent, rising marginally against March 2013 (5.25 percent), amid the increase in volatile food prices and excise duties.
At the same time, the annual inflation rate measured by the Harmonised Index for Consumer Prices, which the National Institute of Statistics determines based on the Eurostat methodology in order to ensure EU‑wide comparability, came in at 4.38 percent, down from 4.56 percent in December 2012 and 4.45 percent in March 2013.
The annual adjusted CORE2 inflation rate 1 stayed on a downward path, falling to 2.66 percent in May 2013 versus 3.25 percent in December 2012.
Turning to economic growth, the annual GDP dynamics picked up in 2013 Q1 (to 2.2 percent against 1.1 percent in 2012 Q4) on the back of net exports, whose upturn entailed a marked advance in manufacturing output. The improvement in the trade balance had a bearing on the current account, the balance of which remained in positive territory January through April 2013.
The annual dynamics of foreign currency lending to the private sector dropped by 4.1 percent, while local currency lending saw a stalemate.
The exchange rate of the leu posted wider swings, owing to heightened volatility of investors’ risk appetite, as well as to the persistence of uncertainty surrounding economic activity in Europe and elsewhere.
In this context, the monetary policy conduct was aimed at firmly anchoring inflation expectations, consolidating the monetary policy impulse transmission and increasing confidence in the positive performance of the economy, amid the implementation of the arrangements signed with the international financial institutions. The NBR’s adequate calibration of the management of banking system liquidity and the narrowing of the symmetrical corridor defined by the interest rates on the standing facilities around the policy rate were reflected favourably by the downtrend in interbank rates and yields on government securities, which are now close to or below the policy rate.
The current short-term projection reconfirms the resumption of disinflation as of July 2013. The annual inflation rate is expected to decelerate at a faster pace and re‑enter in September/October 2013 the ±1 percentage point variation band around the 2.5 percent target. In addition, the adjusted CORE2 inflation rate is anticipated to stay on a downward trend, amid the persistence of the negative output gap.
This outlook enables the gradual easing of the monetary policy stance, while effectively anchoring inflation expectations and duly monitoring domestic and global developments.
Against this backdrop, the Board of the National Bank of Romania decided to lower the monetary policy rate to 5.0 percent per annum from 5.25 percent starting 2 July 2013.
Also starting with 2 July 2013, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 8.0 percent from 8.25 percent, while its deposit facility rate will stand at 2.0 percent per annum versus 2.25 percent previously.
The NBR Board also decided to continue to pursue an adequate liquidity management in the banking system and to leave unchanged the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The decisions convey a positive signal to the banking system, the business community and households, by prompting a gradually downward trend in domestic currency lending costs and fostering economic activity. Such a monetary policy configuration is further aimed at achieving the objective of ensuring medium-term price stability while preserving financial stability and cushioning the adverse impact of domestic and external factors on the recovery of the Romanian economy.
The major risks to the short-term inflation outlook refer to capital flow volatility, given the current global picture, and to the persistence of structural rigidities across the Romanian economy.
The NBR will closely monitor domestic and global economic developments so as, via the gradual adjustment of the monetary policy conduct and the adequate use of its instruments, to achieve price stability over the medium term and financial stability.
In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 5 August 2013, when the new quarterly Inflation Report is to be examined.
1Calculated by excluding administered prices, volatile prices, as well as tobacco and alcohol prices from the consumer price index.
» Video: Press briefing, 1 July 2013 (Romanian only)