In its meeting of 6 May 2014, the Board of the National Bank of Romania decided the following:
- To keep unchanged the monetary policy rate at 3.5 percent per annum;
- 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 examined and approved the quarterly Inflation Report which will be presented to the public in a news conference scheduled for May 8, 2014.
The latest macroeconomic data underscore the inflation rate sticking to low levels, in line with central bank projections. This development was further underpinned by fundamentals, namely the persistence of the negative output gap and the maintenance of inflation expectations inside the variation band of the target. One-off factors and developments in other indicators, including industrial producer prices, point to further moderate inflationary pressures.
In March 2014, the annual inflation rate fell to 1.04 percent from 1.55 percent in December 2013. At the same time, the average annual inflation rate went down to 2.8 percent in March against 3.2 percent in the previous month and the average annual inflation rate based on the Harmonised Index of Consumer Prices, which is relevant for ensuring comparability at European level and assessing convergence with the European Union, reached 2.3 percent in March from 2.6 percent a month earlier.
The continuation of disinflation in line with the forecasted path confirmed the previous monetary policy stance adjustments, amid close monitoring of domestic and global developments. This stance was aimed at effectively anchoring inflation expectations, being deemed as adequate for preserving medium-term price stability consistent with the 2.5 percent flat target, while supporting the rebound in lending.
The improvement in economic activity in Romania has further been fostered by export growth and the favourable performance of the industrial sector, as well as by the gradual consolidation of consumption. Looking at the external sector, the current account and the international reserves remain in a comfortable zone while a substantial part of Romania’s external public debt has been repaid.
Mention should be made of the pick-up in the real growth rate of local currency-denominated loans, alongside the dynamics of foreign exchange credit posting more negative readings, thus the increase in total loans to the private sector remaining in negative territory. The share of foreign exchange loans in total credit to the private sector (stocks) fell below the 60 percent level to touch 59.5 percent for the first time in five years, helping consolidate the monetary policy transmission mechanism.
Money market rates, particularly those serving as a benchmark for borrowing agreements, hover around the monetary policy rate, allowing for a further adjustment of lending rates on new business.
In today’s meeting, the NBR Board examined and approved the quarterly Inflation Report, which reiterates the outlook for the annual inflation rate to run over the medium term inside the variation band of the target, i.e. ±1 percentage point around the 2.5 percent multiannual flat target, starting in the latter half of 2014. Thus, according to the new projection, the annual inflation rate will be 3.3 percent at end-2014 and end-2015, concurrently with the average annual inflation rate evolving in the proximity of the multiannual flat target.
Similarly to the previous assessments, the risks associated with this outlook stem primarily from external sources, namely the variability of investors’ risk appetite over the short and medium term in relation to emerging economies as a whole amid the recent geopolitical and regional tensions, the ongoing cross-border deleveraging across the banking system and the effects of monetary policy stance adjustments by major central banks.
Domestically, the risks and uncertainties relate to the persistence of structural rigidities across the Romanian economy, which calls for fast-paced reforms, as agreed under the financing arrangements signed with the international institutions.
Against this background, the Board of the National Bank of Romania has decided to keep the monetary policy rate unchanged at 3.5 percent per annum and to pursue an adequate liquidity management in the banking system.
At the same time, the Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions, while reiterating that their harmonisation with European levels over the medium term will continue at an appropriate pace and time, conditional on the economic and financial environment domestically and externally.
These decisions help attain the overriding objective of preserving medium-term price stability as well as financial stability, paving the way for balanced and lasting economic growth.
In this context, the consistent implementation of an adequate macroeconomic policy mix, in line with the provisions of the external financing arrangements, and balanced social and political developments during the 2014 election year are pivotal to consolidating favourable prospects for the Romanian economy, thereby enhancing its resilience to external shocks.
The NBR monitors closely the domestic and global economic developments so as, by calibrating the monetary policy conduct and making adequate use of its available tools, to maintain medium-term price stability and financial stability.
The new quarterly Inflation Report will be presented to the public in a news conference on 8 May 2014. According to the approved calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 1 July 2014.
Video (Romanian only):
» Press briefing, 6 May 2014
» Press conference, 8 May 2014 - quarterly inflation report