In its meeting of September 27, 2012, the Board of the National Bank of Romania decided the following:
- To maintain the monetary policy rate at 5.25 percent per annum;
- To ensure adequate liquidity management in the banking system;
- To maintain the existing levels of minimum reserve requirement ratios on both leu-and foreign currency-denominated liabilities of credit institutions.
The NBR will closely monitor domestic and global economic developments so as, by accordingly adjusting its available instruments, to ensure the fulfilment of its objectives of achieving price stability in the medium term, as well as maintaining financial stability.
The annual inflation rate picked up, reaching 3.88 percent in August 2012, as a result of a statistical base effect, which was anticipated in the NBR forecasts. This will have a temporary unfavourable influence, yet it is already amplified by the drought-induced increase in domestic volatile food prices and the rise in prices of global agri-food commodities, as well as by the recent developments in exchange rates on forex markets.
However, up to August 2012, the average 12-month growth rate of consumer prices was 2.8 percent, close to the EU and euro area average levels. At the same time, annual adjusted CORE2 inflation1 stood at 2.6 percent compared with 2.3 percent in July, given that the unfavourable impact of a weaker domestic currency, with an effect on inflation expectations, was mitigated by the persistence of a negative output gap.
The external environment remained volatile, marred by uncertainties surrounding a lasting solution to the euro area sovereign debt crisis and the developments in the banking systems of some European countries, against the background of worsening growth prospects worldwide. In this context, the high volatility of investors’ risk aversion remains the key coordinate of the external environment, weighing on capital flows.
The monetary analysis underlines a further reduction in the dynamics of credit to the private sector, with a more pronounced slowdown in its foreign currency component.
Monetary policy preserved its prudent stance, by adjusting broad monetary conditions to the domestic and global macroeconomic environment. The central bank’s efforts to manage liquidity on the money market led to a slight alleviation in the asymmetry of liquidity distribution.
Recent assessments show a worsening short-term outlook for inflation, particularly in respect to volatile prices, as some risks highlighted in the latest NBR forecast have materialised, especially those regarding developments in global and domestic food prices. The persistence of a wide negative output gap will, however, further exert disinflationary effects.
This context calls for preserving a prudent monetary policy stance in order to ensure a firm anchoring of inflation expectations.
The further prudent monetary policy stance is also required by the uncertainty-ridden external environment which, together with domestic developments in the run-up to the elections, could entail an abrupt heightening of the risks associated with the volatility of capital flows and of the exchange rate.
Therefore, the NBR Board has decided to keep the monetary policy rate unchanged at 5.25 percent per annum, to ensure the adequate management of liquidity in the banking system and to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR is restating that the implementation of a balanced macroeconomic policy mix and of structural reforms, amid the fulfilment of commitments under the external financial arrangements with the European Union, the IMF and other international financial institutions, is essential to achieving price stability in the medium term as well as consolidating financial stability, both being prerequisites for lasting and sustainable economic growth.
The NBR Board reaffirms that it will closely monitor domestic and global economic developments so as, by accordingly adjusting its available instruments, to ensure the fulfilment of the central bank’s objectives in terms of financial and price stability.
In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 2 November 2012, when the new quarterly Inflation Report is to be examined.
1 Calculated by excluding administered prices, volatile prices, and tobacco and alcohol prices from the consumer price index.
» Video: Press briefing, 27 September 2012 (Romanian only)