In its meeting of March 26, 2008, the Board of the National Bank of Romania has decided the following:
- to raise the monetary policy rate to 9.5 percent per annum from 9.0 percent;
- to continue to pursue a firm management of money market liquidity via open-market operations;
- to leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR is restating that it will continue to closely monitor developments in macroeconomic indicators and to assess their outlook, standing ready to adjust its instrument settings to counteract inflationary pressures in order to re-enter as fast as possible the announced medium-term disinflation trajectory in a sustainable manner.
The analysis of the most recent statistical data reveals a higher-than-expected economic growth along with the persistence of a high dynamics of domestic demand, given the rising incomes and the persistent rapid expansion of credit to the private sector.
The annual inflation rate climbed to 7.97 percent in February 2008 from 7.26 percent in the previous month, mainly due to the upward adjustment of natural gas prices and the persistent impact of the drop in the 2007 agricultural output on food prices. Core inflation, calculated by excluding the impact of administered and volatile (vegetables, fruit, eggs and fuel) prices as well as the effect of vice tax, rose to 6.17 percent in February 2008 from 5.92 percent in the previous month.
The continued risk aversion of financial investors amid persistent turbulences on international financial markets has weighed on developments in the leu's exchange rate.
In this context, the monetary policy stance, assessed through broad monetary conditions, saw its restrictiveness further adjusted through the raise in the key monetary policy rate, through a firmer control of money market liquidity and the maintenance of the existing levels for minimum reserve requirement ratios.
The analyses reconfirm the outlook that annual inflation would remain in the following months above the upper limit of the variation band around the target due to continued excess demand-related pressures as well as prolonged effects of supply-side shocks (mainly fuel and food prices).
This outlook, combined with the risks related to a potentially significant deterioration of inflation expectations and uncertainties related to the investors' attitude vis-á-vis emerging markets, requires a tighter monetary policy, with an appropriate dosage. The adjusted monetary policy stance should ensure a firm and sustainable anchoring of inflation expectations at low levels, in order to limit the temporary rise of aggregate prices and bring annual price growth as fast as possible within the medium-term disinflation trajectory agreed with the government.
In light of available data, the NBR Board has decided to raise the monetary policy rate to 9.5 percent per annum from 9.0 percent. The NBR Board has also decided to continue to pursue a firm management of money market liquidity via open-market operations and to leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board is restating that, apart from tighter monetary policy, the implementation of a restrictive economic policy mix, focusing on the fiscal and income components, and stepped-up structural reforms are essential to ensure the return to a durable downward trend in inflation, thus contributing to the achievement of sustainable economic growth in the longer term.
Such a stance of all components of the macroeconomic policy mix is all the more necessary given that the external deficit registers levels difficult to sustain in the longer term in the context of heightened uncertainties affecting the world economy, while a boost in savings represents a longer-term fundamental measure aimed at correcting the external deficit, through a gradual reduction of the savings/investment imbalance.
The NBR is restating that it will continue to closely monitor developments in macroeconomic indicators and to assess their outlook, standing ready to adjust its instrument settings to counteract inflationary pressures in order to re-enter as fast as possible the announced medium-term disinflation trajectory in a sustainable manner.
The NBR Board is reiterating that it will carefully monitor global economic developments and will analyze the effects of persistent international financial market turbulences on the Romanian economy, including from the perspective of maintaining financial stability as a complementary dimension of ensuring price stability.
The next NBR Board meeting dedicated to monetary policy is scheduled for May 6, 2008, when a new quarterly Inflation Report is to be examined and approved.