In its meeting of June 25, 2007, the Board of the National Bank of Romania has decided the following:
- To lower the monetary policy rate to 7.0 percent per annum from 7.25 percent;
- To pursue an adequate control of liquidity via open-market operations, in line with money market conditions;
- To leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR reiterates that it will continue to vigilantly monitor developments in macroeconomic indicators and their outlook in order to ensure that monetary conditions are in line with the achievement of medium-term disinflation objectives and to consolidate the convergence process with the European Union, relying also on the support from other components of the macroeconomic policy mix.
The analysis of the most recent trends in macroeconomic indicators shows a continuation of the disinflation process, a relatively slower economic growth and a widening of the current account deficit against the background of persistently high dynamics of domestic absorption.
Wage dynamics has stayed high while the labour market has tightened. The monetary area has registered a marginal slowdown in the pace of nongovernment credit expansion, with a tempering of leu-denominated credit dynamics and a faster pace of foreign currency lending growth.
Annual inflation stood at 3.81 percent in May, lower than 4.87 percent last December. The mild increase of inflation in May compared to the previous month was triggered by adjustments in state-controlled rental tariffs and increased volatile prices (vegetables, fruit, fuels), but its level is consistent with the aim of attaining the medium-term inflation objectives.
Core inflation, adjusted for the effects of excise taxes on tobacco and alcohol, has fallen further to 2.7 percent in May from 2.8 percent in April and 3.0 percent in December 2006.
The drop in core inflation shows that broad monetary conditions have remained restrictive in the context of the recent adjustment of the levels of monetary policy instruments, of more pronounced leu appreciation and of maintained minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
In light of the available data, the NBR Board has decided to lower the monetary policy rate to 7.0 percent per annum from 7.25 percent, to pursue an adequate control of liquidity via open-market operations in line with money market conditions and to leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
Although disinflation continued, risks related to wage rises, a procyclical fiscal policy and to wider external imbalances require the maintenance of a prudent monetary policy stance.
The NBR reiterates that it will continue to vigilantly monitor developments in macroeconomic indicators and their outlook in order to ensure that monetary conditions are in line with the achievement of medium-term disinflation objectives and to consolidate the convergence process with the European Union, relying also on the support from other components of the macroeconomic policy mix.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy is scheduled