In its meeting of January 5, 2010, the Board of the National Bank of Romania decided the following:
- to lower the monetary policy rate to 7.5 percent per annum from 8.0 percent starting with January 6, 2010;
- to ensure a firm management of liquidity in the banking system in order to consolidate the transmission of monetary policy signals;
- to maintain the existing level of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board reiterates that the central bank will continue to closely monitor domestic and global economic developments so as, by using its available instruments, to ensure the fulfillment of its objectives of achieving and maintaining price stability in the medium term as well as financial stability.
The analysis of macroeconomic indicators developments reveals a temporary stagnation of disinflation in the context of a consolidation of the slowdown in adjusted CORE2 inflation amid a persistently severe economic contraction, along with a relative improvement of foreign investors’ perception regarding the Romanian economy, given the softening tensions in the domestic political field.
The annual inflation rate rose to 4.65 percent in November 2009 from 4.3 percent in the previous month due to increases in excise duties and food prices, but remained below the 6.3 percent level recorded in December 2008. It is worth noting that the higher excise duties on tobacco are estimated to have contributed 1.8 percentage points to last year’s annual inflation rate.
The adjusted annual CORE2 inflation – calculated by excluding the impact of administered and volatile prices (vegetables, fruit, eggs and fuel) as well as of the prices of major items subject to excise duties, i.e. tobacco and alcohol – remained on a downward trend, sliding to 3.3 percent in November 2009 from 3.4 percent a month before and 6.3 percent in December 2008.
In the monetary area it is worth noting the continued slowdown in real terms of the annual dynamics of credit to the private sector, especially of the leu-denominated component, amid still weak demand for loans against the background of the recession. The annual growth of government credit stayed high, as the substantial budget deficit financing needs for the last quarter of 2009 contributed to the persistence of the spread between interbank money market rates and the monetary policy rate.
The monetary policy stance was aimed at ensuring a consolidation of the perspectives of ensuring the convergence of inflation towards medium-term objectives and anchoring of inflation expectations in the context of heightened risks related to fiscal and income policies amid a volatile political climate in the last part of 2009. Therefore, the real broad monetary conditions remained prudent.
As the effects of higher excise duties are expected to subside throughout 2010 and the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions is reactivated, favourable prospects for a consolidation of disinflation are to be expected.
In this context, in order to ensure the convergence of inflation rate towards the announced medium-term targets, alongside a solid relaunch of the economic growth, the NBR Board has decided to lower the monetary policy rate to 7.5 percent per annum from 8.0 percent. Consequently, starting January 6, 2010, the rate on the deposit facility will be lowered to 3.5 percent per annum from 4.0 percent and the rate on the lending facility (Lombard) will be 11.5 percent per annum versus 12.0 percent. At the same time, the penalty rate for deficits of leu-denominated minimum reserve requirements will drop to 17.25 percent starting with the January 24-February 23, 2010, maintenance period.
The NBR Board also decided to ensure a firm management of liquidity in the banking sector in order to consolidate the transmission of monetary policy signals as well as to maintain the existing level of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The ongoing prudent stance of the monetary policy, including an optimal dosage of the instruments available to the central bank, and the observance by the other components of the macroeconomic policy mix of the commitments agreed under the multilateral external financing arrangement are essential to ensure a sustainable disinflation and fulfilment of medium-term objectives.
The NBR Board reiterates that the central bank will continue to closely monitor domestic and global economic developments so as, 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 February 3, 2010, when a new quarterly Inflation Report is to be examined.