In its meeting of August 4, 2009, the Board of the National Bank of Romania has decided the following:
- to lower the monetary policy rate to 8.5 percent per annum from 9.0 percent starting with August 5, 2009;
- to lower the minimum reserve requirements ratio on foreign currency-denominated liabilities with residual maturities of up to two years to 30 percent from 35 percent starting with the August 24-September 23, 2009, maintenance period;
- to actively use open-market operations in order to ensure an adequate management of liquidity in the banking system and reduce to one week from one month the maturity of the main monetary policy instrument, the repo operations via auctions.
The NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for August 6, 2009.
The annual inflation rate stood at 5.86 percent in June versus 5.95 percent in May and this year's peak of 6.89 percent in February 2009. 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 – dropped to an annual rate of 4.79 percent in June from 5.04 percent in the previous month.
The consolidation of the disinflation process was the result of slower dynamics of fuel and food prices amid a contraction in aggregate demand and of moderation in the volatility of the leu exchange rate.
The money market functioning saw positive developments, with interbank rates stabilizing around the monetary policy rate level, while lending and deposit rates for non-bank customers saw a further fall amid a relative attenuation of the discrepancy between their levels and the ones of the monetary policy rate and interbank rates.
The analysis of external financial indicators shows significant improvements, highlighted by a substantial narrowing of the current account deficit, a reduction in the level of short-term private external debt and an increase in hard currency reserves. The shift in the structure of foreign currency reserves due to the lower proportion of resources coming from foreign currency-denominated minimum reserve requirements is also worth noting.
The monetary policy stance remained prudent, with the NBR permanently calibrating its broad monetary conditions with the view to consolidating the convergence of inflation towards medium-term objectives and ensuring favorable conditions for a sustainable revival of lending activity.
In light of the available data and of the assessment of recent and upcoming developments, the NBR Board has decided to lower the monetary policy rate to 8.5 percent per annum from 9.0 percent. Consequently, starting August 5, 2009, the rate on the deposit facility will be lowered to 4.5 percent per annum from 5.0 percent and the rate on the credit facility (Lombard) will be 12.5 percent per annum versus 13.0 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 18.75 percent from 19.5 percent, starting with the August 24-September 23, 2009, maintenance period.
The NBR Board also decided to continue to actively use open-market operations to ensure an adequate management of liquidity in the banking system and to lower the maturity of its main instrument, the auction-based repo operations, to one week from one month.
In order to ensure smooth liquidity flows and the continuation of a gradual alignment to European Central Bank standards, the NBR Board has also decided to cut the minimum reserve requirements ratio on hard currency-denominated liabilities of credit institutions to 30 percent, from 35 percent, for residual maturities of up to two years starting with the August 24-September 23, 2009, maintenance period.
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 Report will be presented to the public in a news conference scheduled for August 6, 2009.
The perspectives show a continuation of the disinflation process, though the outlook is still influenced by the developments in the international crisis and the persistence of significant structural rigidities of the domestic economy. The consolidation of disinflation, maintaining financial stability and the creation of prerequisites for a sustainable relaunch of economic activity require a firm and consistent implementation of the macroeconomic policy mix – monetary, fiscal and income – as well as of the structural reforms agreed under the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions.
The NBR Board reaffirms that the NBR will continue to 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 September 29, 2009.