In its meeting of 8 January 2014, the Board of the National Bank of Romania decided the following:
- to lower the monetary policy rate to 3.75 percent per annum from 4.0 percent starting with 9 January, 2014;
- to pursue an adequate liquidity management in the banking system;
- to cut the minimum reserve requirements ratio on leu-denominated liabilities of credit institutions to 12 percent from 15 percent and lower the minimum reserve ratio on foreign-currency denominated liabilities of credit institutions to 18 percent from 20 percent starting with the 24 January-23 February, 2014 maintenance period.
The NBR reiterates that the adequate use of its available tools amid a close monitoring of domestic and global economic developments is aimed at ensuring price stability over the medium term and financial stability.
The analysis of macroeconomic indicators points to further disinflation, as a result of the decline in volatile prices, particularly food prices, as well as of the persistent negative output gap and the significant improvement in inflation expectations.
The annual inflation rate fell to 1.83 percent in November 2013, from 1.88 percent in the previous month and the annual adjusted CORE2 inflation rate stood in negative territory for the second consecutive month. At the same time, the average annual inflation rate went down to 4.3 percent in November 2013, from 4.5 percent in the prior month and the average annual HICP inflation rate, which is relevant for ensuring comparability at EU level and assessing convergence with the EU, continued to decline to reach 3.5 percent in November 2013, from 3.7 percent in October.
The economic activity was further bolstered by exports, as well as by the improvement in domestic demand given the increase in household final consumption. On the supply side, the bumper agricultural year and the industrial output made the largest contributions to economic growth.
However, the annual rate of change of total loans (in domestic and foreign currency) to the private sector remained in negative territory, despite the relatively improved performance of leu-denominated loans. The decline in interest rates on new loans to companies and households, the successive monetary policy rate cuts and the improved money market liquidity conditions contribute to the positive dynamics of loans in domestic currency.
The developments in and the favourable outlook of inflation enabled the central bank to adequately calibrate the monetary policy conduct in 2013 and to consolidate the monetary policy transmission mechanism while effectively anchoring inflation expectations and closely monitoring domestic and external developments.
The latest assessments reconfirm the prospects for a further decline in the annual inflation rate to historical lows in the first half of 2014, given the favourable base effect and the impact of the 2013 bumper crop. These developments are in line with the previous forecasts of the annual inflation rate returning and subsequently remaining inside the variation band of the flat 2.5 percent target.
The risks associated with the medium-term inflation outlook are primarily related to foreign capital flow volatility, owing to cross-border deleveraging across the banking system and to the variability of investors’ risk appetite also following the decisions of the major central banks across the globe.
The consistent implementation of an adequate macroeconomic policy mix, in line with the precautionary external financing arrangement signed with the international financial institutions, along with balanced social and political developments during the electoral year 2014, will help consolidate the stability of the Romanian economy, thereby strengthening its resilience to external shocks.
Against this backdrop, the Board of the National Bank of Romania has decided to lower the monetary policy rate to 3.75 percent per annum from 4.0 percent previously. Hence, starting with 9 January 2014, the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 6.75 percent from 7.0 percent, while its deposit facility rate will stand at 0.75 percent per annum. The NBR Board has also decided to continue to pursue adequate liquidity management in the banking system.
Moreover, in order to support sustainable lending and to bring the minimum reserve requirements mechanism in line with European Central Bank standards in the field, the NBR Board has decided to cut the minimum reserve requirements ratio on leu-denominated liabilities of credit institutions to 12 percent from 15 percent and lower the minimum reserve ratio on foreign currency-denominated liabilities of credit institutions to 18 percent from 20 percent starting with the 24 January-23 February 2014 maintenance period.
The NBR reiterates that the adequate use of its available tools amid a close monitoring of domestic and global economic developments is aimed at ensuring 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 4 February 2014, when the new quarterly Inflation Report is to be examined.
» Video: Press briefing, 8 January 2014 (Romanian only)