In its meeting of 5 November 2013, The Board of the National Bank of Romania decided the following:
- To lower the monetary policy rate to 4.0 percent per annum from 4.25 percent starting with November 6, 2013;
- To pursue an 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 Board has examined and approved the new quarterly Inflation Report, which will be released to the public in a press conference scheduled for 7 November 2013.
The latest macroeconomic data point to faster disinflation attributed to the significant decline in food prices as a result of the bumper crops, the cut in the VAT rate for bread and some bakery products and the fading away of the negative base effect manifest in 2012. To these factors added the impact of the persistent negative output gap and the improvement in inflation expectations.
Given the influence of the above-mentioned factors, the annual inflation rate dropped to 1.88 percent in September 2013 from 3.67 percent a month earlier.
At the same time, the average annual inflation rate fell to 4.8 percent in September 2013, from 5.1 percent in the previous month. The annual inflation rate measured by the harmonised index of consumer prices, a relevant indicator to ensure EU‑wide comparability and to assess the degree of convergence with the European Union, averaged out at 4.1 percent in September 2013, down from 4.4 percent in the previous month.
The improvement in inflation developments and the related outlook has enabled the central bank to gradually adjust the monetary policy stance over the past few months, under conditions compatible with effectively anchoring inflation expectations and in parallel with closely monitoring domestic and external developments.
Exports, together with this year’s bumper crops, have been the main driver of the recent economic upturn in Romania, contributing to a substantial correction of the balance-of-payments current account deficit and boosting industrial production. At the same time, domestic demand has seen modest recovery, which is envisaged to strengthen gradually.
The real annual dynamics of loans to the private sector are still in negative territory, despite a relative improvement in the developments in domestic currency loans. The successive policy rate cuts in the recent months have favourably fed through, albeit with a certain lag, to lending rates to the real sector.
The consolidation of the monetary policy transmission mechanism thus paves the way for the revival of sustainable lending, restoration of confidence and the support provided to economic growth. There is still room for lowering lending rates for companies and households, in compliance with prudential rules.
In today’s meeting, the NBR Board has examined and approved the quarterly Inflation Report, which foresees a decline in inflation rate to all-time lows in the first half of 2014, amid the ongoing transitory impact of this year’s crops and the lower VAT rate for some bakery products.
According to the updated projection, inflation rate will experience a temporarily steeper fall over the coming months and will remain thereafter inside the variation band around the flat 2.5 percent target until the end of the projection horizon.
The risks associated with the updated projection are primarily related to the external environment, stemming from capital flow volatility, owing to cross-border deleveraging across the banking system and to the variability of investors’ risk appetite.
Against this backdrop, the Board of the National Bank of Romania has decided to lower the monetary policy rate to 4.0 percent per annum from 4.25 percent previously. Hence, starting with 6 November 2013, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 7.0 percent from 7.25 percent, while its deposit facility rate will stand at 1.0 percent per annum. The NBR Board has also decided to continue to pursue 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 gradual adjustment of monetary conditions is aimed at sustainably preserving price stability over the medium term in line with the flat annual target of 2.5 percent. This conduct will help anchor inflation expectations at low levels and ensure sound, lasting recovery of lending to the private sector.
The consistent implementation of an adequate macroeconomic policy mix, in line with the new precautionary external financing arrangement signed with the international financial institutions, will also help consolidate stability and growth prospects of the Romanian economy, thereby strengthening its resilience to external shocks.
The NBR reiterates that it will closely monitor domestic and global economic developments so as, via the proper calibration of the monetary policy conduct and the adequate use of all its available tools, to ensure price stability over the medium term and financial stability.
The new quarterly Inflation Report will be released to the public in a press conference on 7 November 2013. In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 8 January 2014.
Video (Romanian only):
» Press briefing, 5 November 2013
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