Press Release of the Board of the National Bank of Romania
05.05.2016
In its meeting of 5 May 2016, the Board of the National Bank of Romania decided the following:
- to keep unchanged the monetary policy rate at 1.75 percent per annum;
- to pursue adequate liquidity management in the banking system; and
- to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board has also analysed and approved the new quarterly Inflation Report which will be released to the public on May 10, 2016.
In line with expectations, the annual inflation rate went deeper into negative territory in the first quarter of this year to reach -3.0 percent in March against -0.93 percent in December 2015, as a result of the cut in the standard VAT rate to 20 percent, from 24 percent, starting 1 January 2016 and low global commodity prices.
The average annual CPI inflation rate went down to -1.4 percent in March, while the average annual inflation rate based on the Harmonised Index of Consumer Prices, which is relevant for assessing convergence with the European Union, came in at -1.1 percent.
Annual GDP growth gathered momentum in 2015 to hit a post-crisis high of 3.8 percent, driven by the significant advance in consumption and the strengthening uptrend in investment. The negative contribution from net exports increased, with the influence of swift growth of domestic absorption becoming visible especially in the latter part of 2015.
The most recent data and business surveys point to an ongoing expansion of consumer demand, amid the fiscal stimuli and rising household income. At the same time, the industrial sector witnessed a decline in labour productivity, along with positive annual dynamics of wages.
Real monetary conditions have retained their stimulative nature. The annual growth rate of credit to the private sector saw its upward trend strengthening, fuelled by the fast-paced increase in leu-denominated loans. Loans in domestic currency came to hold 52.7 percent of the stock of private sector loans in March 2016, from 51.7 percent in the previous month (the highest reading since 2007), laying the groundwork for an improvement in the monetary policy transmission and the mitigation of risks to financial stability.
In today’s meeting, the NBR Board has examined and approved the May 2016 Inflation Report. The Report shows the new quarterly forecast, which envisages the annual inflation rate remaining in negative territory until July 2016, due to transitory effects of the cut in the VAT rate and other indirect taxes, as well as to the reduction in some administered prices (energy). The baseline scenario sees the inflation rate gradually returning inside the variation band of the target and standing in the upper half of the band at the end of the forecast horizon.
Risks to the current projection stem from both domestic and external sources, against the background of heightened uncertainty.
Specifically, the external environment is further affected by increased concerns over global economic growth, the renewed worsening of the situation in Greece, and the forthcoming referendum in the UK. To this adds the uncertainty related to the volatility of the international financial markets, geopolitical tensions, the diverging monetary policy stances of the world’s major central banks, and the international oil price evolution.
On the domestic front, risks stem from the fiscal and income policies, as well as from the adverse effects of legislative changes in the financial field.
Based on currently available data and in the context of heightened uncertainty, the Board of the National Bank of Romania has decided to keep unchanged the monetary policy rate at 1.75 percent per annum and to further pursue adequate liquidity management in the banking system.
Moreover, the NBR Board has decided to maintain the existing levels of minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
These decisions aim to ensure price stability over the medium term, which helps achieve sustainable economic growth. The NBR Board reiterates that a balanced macroeconomic policy mix and structural reforms are pivotal to consolidating the Romanian economy and enhancing its resilience to adverse conditions worldwide.
The NBR is closely monitoring domestic and external developments for an adequate use and dosage of all its available tools to fulfil the overriding objective regarding medium-term price stability and preserve financial stability.
The new quarterly Inflation Report will be presented to the public in a press conference on 10 May 2016. In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 30 June 2016.
