The analysis of the latest statistical data shows the continuation of the disinflation process, with the annual inflation rate falling to 5.95 percent in May 2009 from 6.45 percent in April, amid a slowdown of the growth in administered and volatile prices. The adjusted CORE2 inflation - calculated by excluding the impact of administered and volatile prices (vegetables, fruit, eggs and fuels) as well as the effects of vice tax - also dropped to an annual rate of 5.04 percent in May from 5.51 percent the previous month, reflecting the reduction of aggregate demand.
The faster-than-expected adjustment of the external deficit is correlated with the steeper decline of domestic economic activity amid the effects of the global economic and financial crisis.
In the monetary area, it is worth noting the significant slowdown of the credit to the private sector, especially as regards lending to firms, with the annual dynamics reaching a seven-year low both at aggregate level and broken down by components.
The average interbank money market rate has approached the monetary policy rate. The average rates on banks' new term deposits as well as their lending rates on new loans have seen significant downward adjustments, albeit remaining distorted in relation to the monetary policy rate. Meanwhile, the leu exchange rate volatility has considerably subsided amid a progressive improvement in financial investors' global risk appetite and a visibly narrower current account deficit in the first half of 2009, as well as against the background of Romania's conclusion of the multilateral external financing arrangement with the International Monetary Fund, the European Union and other international financial institutions.
The above-mentioned developments, along with the outlook of continued disinflation in the upcoming months, highlight the need to calibrate monetary policy with the view to ensuring adequate real broad monetary conditions both for the achievement of medium-term inflation goals and for a sustainable revival of the lending process in the Romanian economy.
In light of the available data, the NBR Board has decided to lower the monetary policy rate to 9.0 percent per annum from 9.5 percent and to continue to actively use open-market operations in order to ensure an adequate management of liquidity in the banking system.
Consequently, starting July 1, 2009, the rate on the deposit facility will be lowered to 5.0 percent per annum from 5.5 percent and the rate on the credit facility (Lombard) will be 13.0 percent per annum versus 13.5 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 19.5 percent from 20.25 percent, starting with the July 24-August 23, 2009 maintenance period.
In order to ensure smooth liquidity flows, a gradual alignment to European Central Bank standards and to support sustainable lending process in the Romanian economy, the NBR Board has also decided to cut the minimum reserve requirements ratios on leu-denominated liabilities of credit institutions to 15 percent from 18 percent and on foreign currency-denominated liabilities to 35 percent from 40 percent, both for residual maturities of up to two years, starting with the July 24-August 23, 2009 maintenance period.
The NBR Board considers that these decisions will contribute to ensuring an adequate level of liquidity and a gradual return of banks' deposit and lending rates to the appropriate functional position in relation to the monetary policy rate.
The NBR Board reiterates that a firm and consistent implementation of the balanced macroeconomic policy mix - monetary, fiscal and income, as well as of the structural reforms agreed within the multilateral external financing arrangement with international institutions is essential to consolidating disinflation and financial stability.
The NBR will closely monitor domestic and global economic developments so that, by using its available instruments, to ensure the fulfilment of its objectives of achieving and maintaining price stability in the medium term as well as financial stability.
In line with the announced calendar the next NBR Board meeting dedicated to monetary policy issues is scheduled for August 4, 2009, when a new quarterly Inflation Report is to be examined.