In its meeting of 28 March 2014, the Board of the National Bank of Romania decided the following:
- To keep the monetary policy rate at 3.5 percent per annum;
- To pursue an 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 an adequate use of its available tools amid a close monitoring of domestic and global economic developments will ensure the achievement of its main objective of maintaining price stability over the medium term and ensure financial stability.
The analysis of the latest developments in macroeconomic indicators points to further disinflation, in line with the path forecasted by the central bank, along with a recovery of economic activity.
The annual inflation rate fell to a historical low of 1.05 percent in February 2014, from 1.55 percent at end-2013. At the same time, the average annual inflation rate went down to 3.2 percent in February 2014 from 3.6 percent in the previous month, while the average annual HICP inflation rate, which is relevant for ensuring comparability at European level and assessing convergence with the EU, kept declining to reach 2.6 percent in February versus 2.9 percent in January 2014.
These developments and the favourable inflation outlook, amid a close monitoring of domestic and global developments, have enabled the central bank to adjust the monetary policy stance accordingly and to consolidate the monetary policy transmission mechanism, while effectively anchoring inflation expectations.
Banking system liquidity posted fluctuations, with a surplus trend being manifest, thus keeping money market rates, especially short-term rates, below the monetary policy rate.
The favourable liquidity picture, the decline in lending rates on new business following the successive policy rate cuts and the improvement in the evolution of lei-denominated loans create further prerequisites for the recovery of loans to the private sector. Nevertheless, private sector lending dynamics have remained weak as a result of the sizeable drop in foreign currency-denominated loans.
The pick-up in economic activity was attributed to the favourable performance of net exports as well as to the improved domestic demand. On the supply side, industrial and agricultural output made the largest contributions to economic growth.
The latest assessments reconfirm the prospects for the annual inflation rate to remain subdued over the months ahead, in the vicinity of historical lows. This outlook is in line with the previous forecast of the annual inflation rate returning and subsequently remaining inside the variation band of the 2.5 percent ±1 percentage point flat target.
The risks associated with this outlook stem primarily from external sources, namely capital flow volatility, owing to the variability of investors’ risk appetite driven by geopolitical and regional developments, to the faster cross-border deleveraging across the banking system, as well as to the changes in overall exposure to the emerging economies.
Against this backdrop, the Board of the National Bank of Romania has decided to keep the monetary policy rate unchanged at 3.5 percent per annum, to continue to pursue adequate liquidity management in the banking system, as well as to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The monetary policy conduct is aimed at sustainably preserving price stability over the medium term in line with the 2.5 percent flat annual target, while also paving the way for the sustainable recovery of lending supportive of balanced and lasting economic growth.
The NBR Board reiterates that the adequate use of all tools available to the central bank amid a close monitoring of domestic and global economic developments will be conducive to achieving the primary objective of price stability over the medium term, as well as to ensuring financial stability.
The consistent implementation of the macroeconomic policy mix and structural reforms agreed under the external financing arrangements signed with the international institutions, along with balanced social and political developments during the election year 2014, is key to consolidating the stability of the domestic economy and enhancing its resilience to external shocks.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 6 May 2014, when the new quarterly Inflation Report is to be examined.