Press Release of the Board of the National Bank of Romania
08.08.2005
The Board of the National Bank of Romania (NBR) has decided to:
- Eliminate the temporary departure between the monetary policy rate and its effective sterilization rate by unifying these at a level of 8.5 percent per year
- Approve the NBR Inflation Report, the first quarterly report of its kind, which signals the official switch to the direct inflation targeting strategy
- Present the NBR Inflation Report, together with the specifics of the direct inflation targeting regime and the schedule of NBR Board policy meetings in the press conference programmed for August 15
In its meeting of August 8, 2005, the NBR Board analyzed the latest developments in macroeconomic indicators and their prospects in the context of the official shift to the inflation targeting strategy.
The inflation targeting strategy has as its fundamental objective ensuring and maintaining aggregate price level stability, all monetary policy instruments available to the central bank being employed to this end. This requires increased transparency and consistency of monetary policy messages, while the signaling role of the policy rate gains in importance.
Therefore, the NBR Board has decided to eliminate the temporary departure between the monetary policy rate (the maximum level for money market deposit taking) and its effective sterilization rate (at which it actually drains liquidity from the market) by unifying these at the level of 8.5 percent per year, effective starting August 9, 2005. This departure arose in the context of preparations for the April 2005 step of capital account liberalization.
The NBR Board has also approved the first quarterly Inflation Report which assesses developments in macroeconomic indicators, identifies the main challenges and constraints in implementing monetary policy and presents the inflation outlook. The report, along with the specifics of the direct inflation targeting regime and the schedule of NBR Board policy meetings will be presented to the public on the occasion of the press conference programmed for August 15, 2005.
The NBR Board believes that a prudent monetary policy stance should be continued, given the expectations that inflationary pressures will be present in the short run, as well as the need to prevent the risk of increasing volatile capital inflows.