In its meeting of February 4, 2009, the Board of the National Bank of Romania has decided the following:
- to lower the monetary policy rate to 10.00 percent per annum from 10.25 percent starting with February 5, 2009
- to pursue an adequate management of liquidity in the banking system, through the active use of open-market operations;
- to leave unchanged the existing minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.
The annual inflation rate was 6.3 percent at the end of 2008, down from a peak of 9.04 percent in July 2008 and as compared to 6.57 percent in December 2007. However, the annual inflation rate continues to stay above the upper limit of the variation band around the target.
The resumption and consolidation of the disinflation process were the result of favourable dynamics of volatile prices (fuel and food items), as well as of the implementation of monetary policy.
Nevertheless, the loosening of wage and fiscal policies in the 2008 electoral year along with a depreciation of the national currency amid heightened investor risk aversion have fed inflationary pressures. Thus, the adjusted annual CORE2 inflation rate - calculated by excluding the impact of administered and volatile prices (vegetables, fruit, eggs and fuel) as well as the effect of vice tax - stood at 6.3 percent in December 2008.
The effects of the global financial and economic crisis are increasingly reflected by the reduction of both exports and external financing, an increased volatility on the domestic foreign exchange market, in line with regional trends and by lack of investor risk appetite. Data analysis show that the impact of these developments is already seen in a slowdown of credit to the private sector with knock-on effects on economic growth, while a high degree of uncertainty regarding their magnitude still persists.
The continuation of sustainable intermediation of the economy amid diminished access of banks to external financing and the need to finance the budget deficit required further provision of liquidity in the banking sector, without amplifying the leu's exchange rate volatility.
In this context and in line with available data, the NBR Board has decided to lower the monetary policy rate to 10.00 percent per annum from 10.25 percent. As a result, starting February 5, 2009, the rate on the deposit facility will fall to 6.00 percent per annum from 6.25 percent and the rate on the credit facility (Lombard) will be 14.00 percent per year versus 14.25 percent. Meanwhile, the penalty rate for deficits of leu-denominated minimum reserve requirement, will drop to 21.00 percent starting with February 24-March 23, 2009 maintenance period from 21.25 percent at present.
The NBR Board has also decided to continue to pursue an adequate management of liquidity in the banking system through the active use of open-market operations and to leave unchanged the existing minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.
The NBR Board has examined and approved the quarterly Inflation Report, a document that assesses the recent macroeconomic environment and the inflation outlook, and identifies the main challenges and risks to monetary policy in the coming period.
The perspectives shows a continuation of the disinflation process, though the outlook is gripped by the persistence of major uncertainties related to the volatility of the internal and external macroeconomic developments.
Thus, the consolidation of disinflation amid the starting of an orderly adjustment of the external imbalance in line with the evolution of capital flows, as well as regaining investors' confidence and securing a sustainable financing of the Romanian economy require the configuration and implementation of a balanced and prudent macroeconomic policy mix.
The NBR Board is restating that it will continue to monitor domestic and global economic developments so as to ensure, through an adequate use of its available instruments, in order to fulfil its objectives in what concerns attaining and maintaining price stability in the medium term as well as safeguarding financial stability.
The new quarterly Inflation Report will be released to the public in a press conference scheduled for February 6, 2009, along with a 12-month calendar of NBR Board meetings dedicated to monetary policy issues.