In its meeting of November 10, 2006, the Board of the National Bank of Romania has decided the following:
- to maintain the monetary policy rate at 8.75 percent per annum;
- to remove the limit on the exposure of credit institutions to unhedged borrowers in terms of foreign-currency denominated credits (Norm no. 11/2005) starting from January 1, 2007;
- to continue to pursue firm control over money market liquidity via open-market operations.
The NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for November 14, 2006.
The inflation rate dropped to 4.8 percent year on year in October, falling inside the 2006 target band. Statistical data show further robust economic growth, high dynamics of consumption, investment and credit as well as a continued widening of the current account deficit.
The acceleration of disinflation came as a result of the implementation of tight monetary and fiscal policies and of favorable trends in food prices due to a good agricultural year, whereas the increase in average wages in this period has been relatively close to that of labor productivity.
The improvement of the 2006 inflation forecast is however accompanied by persistent inflationary pressures in the medium term, given the projected rise in government spending, possible wage hikes and the upcoming adjustments in administered prices and excise duties.
The NBR Board reiterates that the achievement of the objective to ensure steady disinflation in a stable economic and financial environment calls for maintaining a restrictive monetary policy stance alongside a consistent and continued support from income and fiscal policies as well as from structural reforms. In this regard, the real monetary policy rate has already registered a significant increase due to a slowdown in price rises.
In light of the available data, the NBR Board has decided to maintain the monetary policy rate at 8.75 percent per annum and to continue to pursue firm control over money market liquidity via open-market operations.
The NBR Board has decided to remove the limit on the exposure of credit institutions to unhedged borrowers in terms of foreign-currency denominated credits (Norm no. 11/2005) starting from January 1, 2007.
The administrative and prudential measures adopted starting 2005 have led to an improvement of the assets/liabilities structure as well as of foreign exchange risk elements in the Romanian financial sector. Thus, the share of foreign currency-denominated loans in total non-government credit narrowed to about 47 percent from 60 percent in July 2005, nearing the share of foreign currency-denominated deposits in overall saving.
The NBR Board has examined and approved the quarterly Inflation Report, which assesses the recent macroeconomic context and inflation outlook, as well as the main challenges and risks to monetary policy in the coming period. The report will be presented to the public in a press conference on November 14, 2006.
The NBR Board is reiterating that it will continue to vigilantly monitor monetary and macroeconomic trends, both domestically and internationally, standing ready to react in order to achieve medium-term disinflation objectives and consolidate the convergence process with the European Union.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy is scheduled for December 28, 2006.