In its meeting of 7 January 2015, the Board of the National Bank of Romania decided:
- To lower the monetary policy rate to 2.5 percent per annum from 2.75 percent starting with 8 January 2015;
- To narrow the symmetrical corridor of interest rates on NBR’s standing facilities around the policy rate to ±2.25 percentage points from ±2.5 percentage points. Thus, starting 8 January 2015, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 4.75 percent from 5.25 percent, while its deposit facility rate will remain at 0.25 percent per annum;
- To pursue adequate liquidity management in the banking system;
- To keep unchanged the current levels of minimum reserve requirements ratios on liabilities of credit institutions.
The analysis of the latest macroeconomic data points to a decline in the annual inflation rate, which followed a path lower than previously forecasted, due to the drop in volatile prices, subdued euro area inflation, the persistence of the negative output gap, and to the ongoing downward adjustment in inflation expectations.
The annual inflation rate stood at 1.26 percent in November 2014, down from 1.44 percent a month earlier. The average annual inflation rate came in at 1.1 percent in November 2014, slightly below the previous month’s reading of 1.2 percent, while the average annual inflation rate based on the Harmonised Index of Consumer Prices – which is relevant for assessing convergence with the European Union – remained unchanged at 1.4 percent.
Foreign exchange reserves remained around EUR 32 billion at end-2014 after making external debt service payments worth about EUR 8 billion and lowering the minimum reserve requirement ratio on credit institutions’ foreign currency-denominated liabilities to 14 percent from 20 percent. The reserves were fuelled by inflows of European funds and government borrowings in international markets.
During 2014, the exchange rate of the leu against the euro witnessed stable developments, with the March-October appreciation being mitigated by heightened global risk aversion amid geopolitical tensions in the region over the final months of the year.
The real growth rate of domestic currency loans picked up thanks to the pass-through of the successive policy rate cuts onto lending rates on new business to companies and households. However, the real annual dynamics of credit to the private sector remained in negative territory, against the background of the contraction in foreign currency credit (stocks) and the ongoing operations to remove non-performing loans from credit institutions’ balance sheets.
Looking at the real economy, the latest statistical data point to a step-up in the annual dynamics of gross domestic product amid the recovery of domestic demand, fostered by both its major components, i.e. consumption and investment.
Over the short term, the path of the annual inflation rate is expected to remain below the lower bound of the variation band of the flat target, as a result of the influence exerted by developments in the global oil price and the persistence of the negative output gap. At the same time, there is heightened uncertainty surrounding external developments owing to resurgent geopolitical tensions in the region and to monetary policy stance adjustments by major central banks worldwide.
Against this background, the Board of the National Bank of Romania has decided to lower the monetary policy rate to 2.5 percent per annum from 2.75 percent starting with 8 January 2015, to continue to pursue adequate liquidity management in the banking system, and to keep unchanged the current levels of minimum reserve requirement ratios on liabilities of credit institutions.
With a view to consolidating the transmission of the policy rate signal, the NBR Board has decided to narrow the symmetrical corridor of interest rates on the NBR’s standing facilities around the policy rate to ±2.25 percentage points from ±2.5 percentage points. Therefore, starting with 8 January 2015, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 4.75 percent from 5.25 percent, while the deposit facility rate will remain at 0.25 percent per annum. Based on currently available data, these decisions are meant to ensure price stability over the medium term, along with the sustainable recovery of lending, which is likely to help achieve balanced and lasting economic growth.
The NBR Board believes that an adequate macroeconomic policy mix, in line with external financing arrangements, together with a sustainable financial intermediation and an appropriate remuneration of bank deposits are pivotal to consolidating the Romanian economy and enhancing its resilience to external shocks.
The NBR is restating that the adequate use and dosage of all its available tools, amid close monitoring of domestic and global economic developments, will ensure the achievement of the overriding objective of maintaining price stability over the medium term, along with preserving financial stability. In line with the approved calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 4 February 2015, when the new quarterly Inflation Report is to be examined.