In its meeting of September 27, 2006, the Board of the National Bank of Romania has decided the following:
- to maintain the monetary policy rate at 8.75 percent per annum;
- to continue to pursue firm control over money market liquidity via open-market operations
The NBR Board is reiterating that it will continue to vigilantly monitor the monetary and macroeconomic trends, both domestically and internationally, standing ready to react in order to achieve medium-term disinflation objectives and consolidate the convergence process with the European Union.
The analysis of the most recent developments in macroeconomic indicators shows continuation of disinflation process ? with year-on-year inflation falling to 6.0 percent in August 2006 ? and faster economic growth against the background of increased investment and high consumption dynamics, which were also supported by credit expansion.
The widening trend of the current account deficit persisted, but its financing via foreign direct investment has improved to stand at about 82.2 percent over January-July 2006 versus 77.3 percent in the same period of 2005.
The slower dynamics of administered prices and of volatile food prices along with restrictive monetary and fiscal policies have triggered a faster pace of disinflation over the past few months, suggesting the end-2006 year-on-year inflation figure will fall within the band around the 5 percent target.
Although the short-term inflation outlook has improved, persistent excess demand against the background of high growth rates of household consumption and an anticipated increase in budget spending in the following months requires the maintenance of a firm monetary policy stance in a bid to ensure the sustainability of the medium-term disinflation process.
In light of the available data, the NBR Board has decided to maintain the monetary policy rate at 8.75 percent per annum and to continue to pursue firm control over money market liquidity via open-market operations.
Moreover, the NBR Board is restating that it will continue to vigilantly monitor macroeconomic and monetary trends, standing ready to adjust its instrument settings in order to ensure the achievement of this year's target as well as of the medium-term disinflation path in line with the announced inflation targets (4.0 percent +/- one percentage points for 2007 and 3.8 percent +/- one percentage points for 2008).
The NBR Board believes that Romania's successful integration in the European Union starting January 2007 requires a continued firm implementation of a balanced mix of economic policies (monetary, fiscal, income as well as structural reforms) in order to consolidate the disinflation process and fulfill the convergence criteria stated by the Maastricht Treaty.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy is scheduled for November 10, 2006 when a new quarterly Inflation Report is to be examined.