In its meeting of 30 September 2013, The Board of the National Bank of Romania decided:
- to lower the monetary policy rate to 4.25 percent per annum from 4.5 percent per annum starting with October 1, 2013;
- 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 reiterates that it will closely monitor domestic and global economic developments so as, via the calibration of the monetary policy conduct and the adequate use of its available tools, to ensure price stability over the medium term and financial stability.
The annual inflation rate remained on a downward path, reaching 3.67 percent in August 2013 from 4.41 percent in July due to the decline in volatile prices, of food items in particular, amid the ongoing negative output gap. The annual adjusted CORE2 inflation rate 1 dropped to 2.24 percent in August 2013.
This trend, in line with the central bank’s forecasts in the latest Inflation Report, strengthens the favourable outlook for the annual inflation rate to fall below the 2.5 percent target in the forthcoming period.
The resumption in disinflation has enabled a new cycle of monetary policy easing, in the context of the central bank effectively anchoring inflation expectations and closely monitoring domestic and external developments. The recent pass-through of the policy rate cut to interbank rates and government bond yields shows the consolidation of monetary policy transmission. The impact on lending rates on new business in domestic currency to companies and households feeds through with a certain lag and is moderate for the time being.
The update of the short-term projection by incorporating the latest macroeconomic data reconfirms the faster disinflation until the first part of 2014, driven by the transitory favourable impact of the VAT rate cut applied to bread and other bakery products and of this year’s good crop. At the same time, this outlook is moderated by several factors, namely the faster cross-border deleveraging across the banking system and the volatility of investor risk appetite owing to global developments.
Against this backdrop, the Board of the National Bank of Romania has decided to lower the monetary policy rate to 4.25 percent per annum from 4.5 percent previously. Hence, starting with 1 October 2013, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 7.25 percent from 7.5 percent, while its deposit facility rate will stand at 1.25 percent per annum. The NBR Board has also decided to continue to pursue an adequate liquidity management in the banking system and to leave unchanged the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The ongoing adjustment of monetary conditions is aimed at preserving medium-term price stability, in line with the NBR’s flat target of 2.5 percent, while also paving the way for the sustainable recovery of lending to the private sector, restoring confidence and achieving lasting economic growth.
Economic activity has seen mixed developments, the improved outlook notwithstanding. Net exports, the main driver of economic rebound, continued to have a positive bearing on the performance of both manufacturing output and current account, offsetting the unfavourable impact of the slow recovery of final consumption and investment on annual GDP dynamics.
The real annual rate of change of loans to the private sector remains in negative territory. However, credit institutions further enjoy considerable room for manoeuvre in cutting interest rates on lending to the real sector, subject to prudential rules. Cheaper loans in domestic currency will support and strengthen the sustainable growth of the Romanian economy.
A balanced monetary policy stance, along with an adequate macroeconomic policy mix and the new precautionary financing arrangement concluded with international financial institutions, will contribute to consolidating the stability of the domestic economy and strengthening its resilience to external shocks.
The NBR reiterates that it will closely monitor domestic and global economic developments so as, via the calibration of the monetary policy conduct and the adequate use of its available tools, to ensure price stability over the medium term and financial stability.
In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 5 November 2013, when the new quarterly Inflation Report is to be examined.
1Calculated by excluding administered prices, volatile prices, as well as tobacco and alcohol prices from the consumer price index.
» Video: Press briefing, 30 September 2013 (Romanian only)