In its meeting of August 9, 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 a firm control of money market liquidity via open-market operations and maintain prudential measures to slow down non-government credit expansion;
- to set the 2008 inflation target at 3.8 percent, with a target band of +/- one percentage point.
The NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled on August 16, 2006.
The most recent macroeconomic indicators show a continuation of disinflation at a faster pace than previously forecast, against the background of a slower rise in administered prices and volatile food prices and under the impact of ongoing monetary policy tightening. The continuous slowdown of core inflation is worth mentioning; when computed by excluding the effects of "vice tax", this reached 3.7 percent year on year in June.
The latest data reveal the maintenance of strong dynamics of consumption and non-government credit expansion. Economic growth exceeded expectations and the current account deficit widened further.
In light of available data and given the timeframe needed for the effects of the recent monetary policy tightening to become completely manifest, the NBR Board has decided to maintain the monetary policy rate at 8.75 percent per annum and to keep in place its measures designed to slow down credit growth.
The NBR Board has also examined and approved the quarterly Inflation Report, which assesses the recent macroeconomic context and the inflation outlook, as well as the main challenges and risks to monetary policy in the coming period.
The baseline scenario of the current projection reveals a change of the disinflation pattern compared to the previous forecast, with a faster disinflation process in 2006 and a relative slowdown during 2007.
The prospect of higher inflationary pressures due to the increase in government spending and the inertia of inflation expectations require a firm monetary policy stance for a longer period of time.
Following an assessment of the new forecasts as well as of the medium-term risks and uncertainties related to the inflation outlook, especially the factors outside the central bank's authority, the NBR Board has set, after consultation with government, the 2008 inflation target at 3.8 percent, with a target band of +/- one percentage point.
The target represents an achievable goal and is in line with the need to continue the disinflation process in order to reach a sustainable level in the medium term and later on to fulfill the convergence criteria stated by the Maastricht Treaty.
The NBR reaffirms that it will continue to vigilantly monitor domestic macroeconomic and monetary trends as well as the impact of external developments, standing ready to adjust its instruments to ensure the achievement of medium-term disinflation goals and consolidate the convergence process with the European Union.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for September 27, 2006.