In its meeting of February 2, 2012, the Board of the National Bank of Romania decided the following:
- to lower the monetary policy rate to 5.50 percent per annum from 5.75 percent starting with February 3, 2012;
- to ensure adequate management of liquidity in the banking system;
- to maintain the existing levels of 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, which will be released to the public in a press conference scheduled for February 7, 2012, along with a 12-month calendar of NBR Board meetings dedicated to monetary policy issues.
The annual inflation rate dropped to 3.14 percent in December 2011 from 7.96 percent in December 2010, in line with NBR forecasts, while the annual adjusted CORE21 inflation rate fell to 2.37 percent versus last year’s peak of 4.77 percent recorded in March.
This confirms the consolidation of disinflation, with the annual inflation rate reaching the target against the background of a prudent monetary policy stance, the fading-out of the first-round effect of the VAT rate hike, and of favourable trends in volatile prices, especially of food items as well as their impact on the prices of processed food products.
Looking at domestic developments, statistical indicators reveal the persistence of negative output gap despite positive dynamics in exports, industrial and farming outputs, the current account deficit staying at sustainable levels, but also a gradual recovery of credit to the private sector.
The external environment shows that uncertainties remain regarding the resolution of the Eurozone sovereign debt crisis, with impact on investors’ risk aversion, capital flow volatility, as well as on global economic developments.
The NBR Board has examined and approved the quarterly Inflation Report, a document that assesses developments in the recent macroeconomic environment and the inflation outlook, and identifies the main challenges and risks to monetary policy in the period ahead.
The new forecast reconfirms the perspective of inflation staying within the variation band around the 3 percent target throughout the projection horizon, which paves the way for preserving financial stability and enhancing the confidence of households and economic agents as essential pillars for a sustainable recovery of the Romanian economy.
Risks associated to factors outside the central bank’s influence – administered price adjustments, possible slippages in the implementation of fiscal policy and structural reforms, along with tensions related to the electoral context – persist. These risks, along with uncertainties regarding the external environment, capital flows, and developments in some volatile prices require a cautious calibration of monetary policy instruments to ensure price stability in the medium run, as well as financial stability.
In this context, the NBR Board has decided to lower the monetary policy rate to 5.50 percent per annum from 5.75 percent. Thus, starting February 3, 2012, the annual interest rate on the deposit facility will be cut to 1.50 percent from 1.75 percent, while the overnight (Lombard) rate will be 9.50 percent per annum versus 9.75 percent previously.
The NBR Board has also decided to further pursue an adequate management of liquidity in the banking system and keep unchanged the minimum reserve requirement ratios on both leu and foreign currency-denominated liabilities of credit institutions.
The gradual and judicious adjustment of real broad monetary conditions will help effectively anchor expectations throughout the projection horizon given the outlook for inflation, namely a continued slowdown in both headline and core inflation in the immediately forthcoming period, but also the impact of the unfavourable statistical base effects on the evolution of inflation in the second part of 2012 (which should not trigger overshooting of the variation band around the 3 percent inflation target).
The achievement of both price and financial stability, in the context of the fulfilment of commitments under the external financing agreements with the European Union, the International Monetary Fund and other international financial institutions, is essential for ensuring lasting economic growth. An increased absorption of European funds, along with a gradual revival of domestic demand will especially secure the sustainability of economic recovery.
The NBR is restating that it will continue to closely monitor domestic and global economic developments in order to ensure, by accordingly adjusting its available instruments, the fulfilment of its objectives to achieve price stability, as well as financial stability.
The quarterly Inflation Report will be released to the public in a press conference scheduled for February 7, 2012, along with a 12-month calendar of NBR Board meetings dedicated to monetary policy issues.
1 Calculated by the NBR by excluding administered prices, volatile prices, and tobacco and alcohol prices from the consumer price index.
» Video: Press conference, 7 February 2012 (Romanian only)