In its meeting of 30 September 2014, the Board of the National Bank of Romania decided:
- to lower the monetary policy rate to 3.0 percent per annum from 3.25 percent starting with 1 October 2014;
- to pursue adequate liquidity management in the banking system; and
- to cut the minimum reserve requirements ratio on leu-denominated liabilities of credit institutions to 10 percent from 12 percent starting with the 24 October-23 November 2014 maintenance period and to maintain the minimum reserve requirements ratio on foreign currency-denominated liabilities at 16 percent.
With a view to mitigating interbank money market rate volatility, the NBR Board decided to narrow the symmetrical corridor of interest rates on NBR’s standing facilities around the policy rate to ±2.75 percentage points from ±3 percentage points. Thus, starting 1 October 2014, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 5.75 percent from 6.25 percent, while its deposit facility rate will remain at 0.25 percent per annum.
The NBR reiterates its commitment to the adequate use of all its available instruments, on the background of close monitoring of domestic and global economic developments, with the aim of securing the achievement of its overriding objectives of medium-term price stability and the preservation of financial stability.
The analysis of the latest macroeconomic data shows the annual inflation rate staying at low levels, on a path lower than previously forecasted, mainly under the impact of developments in agri-food prices and of the subdued euro area inflation, overlapping the persistence of the negative output gap and the downward adjustment in inflation expectations. The consolidation over the medium term of the projected inflation path at readings significantly lower than those forecasted previously is still uncertain.
The annual inflation rate stood at 0.84 percent in August 2014, down from 0.95 percent a month earlier. At the same time, the average annual inflation rate remained on a downward path and came in at 1.2 percent in August 2014 compared with 1.5 percent in the previous month, while 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 – decreased to 1.3 percent in August versus 1.4 percent in July.
The annual pace of economic growth witnessed a slowdown, owing primarily to the deceleration in domestic demand dynamics, largely attributable to the negative contribution of gross fixed capital formation. On the supply side, most economic sectors reported a relatively less favourable performance than in the previous period, consisting either in slower annual growth rates (industry and services) or contractions in business volumes (construction).
Domestic currency lending in real terms saw a faster pace of increase, amid lower lending rates on new business to companies and households as a result of the pass-through of policy rate signals. At the same time, the dynamics of foreign currency credit remained deep in negative territory. Consequently, the share of foreign exchange loans in total credit to the private sector narrowed to 57.1 percent in August 2014 from 58.0 percent in June 2014 and 64.4 percent in May 2012. Hence, the real dynamics of total non-government credit (domestic and foreign currencies) continued to post negative readings, also on the back of stepped-up operations to remove non-performing loans from credit institutions’ balance sheets.
Against this background, the NBR Board decided to lower the monetary policy rate to 3.0 percent per annum, from 3.25 percent, starting 1 October 2014 and to further pursue adequate liquidity management in the banking system. At the same time, in order to establish favourable prerequisites for the sustainable recovery of lending and to continue the harmonisation of the reserve requirements mechanism with the standards and practices in the field pursued by the European Central Bank and the major central banks of EU Member States, the NBR Board decided to cut the minimum reserve requirements ratio on leu-denominated liabilities of credit institutions to 10 percent from 12 percent starting with the 24 October-23 November 2014 maintenance period and to maintain the minimum reserve requirements ratio on foreign currency-denominated liabilities at 16 percent.
Moreover, with a view to mitigating interbank money market rate volatility and consolidating the transmission of the policy rate signal, the NBR Board decided to narrow the symmetrical corridor of interest rates on NBR’s standing facilities around the policy rate to ±2.75 percentage points from ±3 percentage points. Thus, starting 1 October 2014, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 5.75 percent from 6.25 percent, while its deposit facility rate will remain at 0.25 percent per annum.
These decisions are meant to ensure price stability over the medium term in line with the 2.5 percent ±1 percentage point flat target, along with creating favourable conditions for the sustainable recovery of lending, which is likely to help achieve balanced and lasting economic growth.
The consistent implementation of an adequate macroeconomic policy mix along the lines of the external financing arrangements and the resumption, by observing prudential rules, of financial intermediation in parallel with an appropriate remuneration of bank deposits are pivotal in consolidating the favourable prospects for the Romanian economy, thereby enhancing its resilience to external shocks.
The NBR reiterates its commitment to the adequate use of all its available instruments, on the background of close monitoring of domestic and global economic developments, with the aim of securing the achievement of its overriding objectives of medium-term price stability and the preservation of financial stability.
In line with the approved calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 4 November 2014, when the new quarterly Inflation Report is to be examined.