In its meeting of May 6, 2009, the Board of the National Bank of Romania has decided the following:
- to lower the monetary policy rate to 9.5 percent per annum from 10.0 percent starting with May 7, 2009;
- to actively use open-market operations in order to ensure an adequate management of liquidity in the banking system;
- to leave unchanged the minimum reserve requirements ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions. It is worth noting that the NBR Board decided on March 31, 2009 to cut to zero the minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years, starting with the May 24-June 23, 2009 maintenance period.
The NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for May 7, 2009.
The annual inflation rate fell slightly to 6.71 percent in March 2009 from 6.89 percent in February amid a slowdown of the growth in services prices. The adjusted annual CORE2 inflation - calculated by excluding the impact of administered and volatile prices (vegetables, fruits, eggs and fuel) as well as the effects of vice tax - also fell, its annual rate sliding to 6.2 percent in March 2009 from 6.6 percent in February and 6.3 percent in December 2008. Nevertheless, inflation remains above the upper limit of the variation band around the annual target.
The analysis of macroeconomic and financial indicators shows a significant slowdown of economic growth against the background of deepening of the global crisis as well as the ongoing, rapid adjustment of the external imbalance, which however has yet to reach sustainable longer-term levels. In the monetary area, it is worth noting the beginning of a negative adjustment of credit to the private sector, which is partially offset by the dynamics of government credit.
The relatively moderation of volatility of the leu exchange rate was a result of an improvement of financial investors' sentiment regarding the Romanian economy, especially against the background of Romania concluding the multilateral external financing arrangement with the International Monetary Fund, the European Union and other international financial institutions. Moreover, interbank money market rates have come closer to the monetary policy rate, the improved assessment of country risk along with the relative alleviation of uncertainties providing a perspective that this process will continue.
In light of the available data and given the need to ensure real broad monetary conditions appropriate for both the achievement of medium-term inflation goals and for a sustainable revival of the lending process in the Romanian economy, the NBR Board has decided to lower the monetary policy rate to 9.5 percent per annum from 10.00 percent.
Consequently, starting May 7, 2009, the rate on the deposit facility will be lowered to 5.5 percent per annum from 6.0 percent and the rate on the credit facility (Lombard) will be 13.5 percent per annum versus 14.00 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 20.25 percent from 21 percent, starting with the May 24-June 23, 2009 maintenance period.
The NBR Board has also decided to continue to actively use open-market operations in order to ensure an adequate management of liquidity in the banking system and to leave unchanged the minimum reserve requirements ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions, at 18 percent and 40 percent respectively. We reiterate that on March 31, 2009 the NBR Board decided to cut to zero the minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years, starting with the May 24-June 23, 2009 maintenance period.
The NBR Board has also examined and approved the quarterly Inflation Report, a document that assesses the recent macroeconomic context, analyzes the inflation outlook and identifies the main challenges and risks to monetary policy in the coming period.
The prospects show a continuation of the disinflation process, despite the persistence of some significant uncertainties and in the context of a relative alleviation of risks associated with the ongoing adjustment of macroeconomic imbalances amid a recent significant correction in the trade and current account deficits and the conclusion of the multilateral external financing arrangement with the IMF, the EU and other international financial institutions. In this context, a consolidation of disinflation and of financial stability requires the firm and consistent implementation of the coherent economic - monetary, fiscal and income - policy mix as well as of the agreed structural reforms.
The NBR Board is restating that it will closely monitor domestic and global economic developments so as to ensure, by using its available instruments, the fulfilment of its objectives in what concerns attaining and maintaining price stability in the medium term, as well as consolidating financial stability in a sustainable manner.
The new quarterly Inflation Report will be released to the public in a press conference scheduled for May 7, 2009. In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for June 30, 2009.