Bancherul - BANCI / ENGLISH / National Bank of Romania keeps the monetary policy rate at 5.25%

In its meeting of August 2, 2012, The Board of the National Bank of Romania decided the following:
•To maintain the monetary policy rate at 5.25 percent per annum;
•To ensure 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 Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference on August 6, 2012.

Developments in macroeconomic indicators show the evolution of inflation in line with the central bank’s forecasts. At the same time, heightened asymmetric risks to the inflation outlook have emerged amid an adverse external environment and domestic political tensions.

After reaching a record low of 1.79 percent in May 2012, the annual inflation rate grew slightly to 2.04 percent in June, on account of the unfavourable base effect anticipated to become temporarily manifest especially in the third quarter of 2012.

The annual adjusted CORE 21 inflation rate hovered around 2.0 percent given that the persistence of the negative output gap attenuated the unfavourable impact of the recent leu depreciation.

The external environment was marked by deteriorating prospects of global economic activity against the background of increased investor risk aversion and of the uncertainties surrounding a sustainable resolution of the euro area sovereign debt crisis.

These developments, combined with persistent domestic political tensions, generated net capital outflows with an unfavourable impact on the leu exchange rate. The slowdown in foreign currency credit growth also triggered a moderation of the expansion in lending to the private sector.

The monetary policy stance remained prudent with a view to consolidating the outlook for maintaining the inflation rate inside the variation band around the target and creating the prerequisites for a lasting economic recovery.

In today’s meeting, the NBR Board has examined and approved the quarterly Inflation Report, a document that assesses developments in the recent macroeconomic environment, in inflation and its outlook, and identifies the main challenges and risks to monetary policy in the period ahead.

The updated forecast reconfirms the prospects of the annual inflation rate to remain within the variation band around the target throughout the forecast horizon, despite the short-term outlook being marked by conjunctural trends in financial markets and the unfavourable temporary impact of the above-mentioned base effect.

Heightened risk aversion, against the background of an unfavourable external environment and of possibly persistent domestic political tensions together with the above-mentioned developments, calls for further maintaining a prudent monetary policy stance. This requires securing adequate real broad monetary conditions in order to efficiently anchor expectations, achieve the objective of maintaining price stability in the medium term and ensure a smooth functioning of financial markets.

Therefore, the NBR Board has decided to keep unchanged the monetary policy rate at 5.25 percent per annum, to ensure 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 restates that achieving price and financial stability objectives in the context of the further fulfilment of commitments under the arrangements with the European Union, the IMF and other international financial institutions is crucial to sustain lasting economic growth in the context of a balanced macroeconomic policy mix.

The NBR will continue to closely monitor domestic and global economic developments so as, by an adequate dosage of its instruments, to ensure the fulfilment of its objectives to achieve price stability over the medium term, as well as financial stability.

The quarterly Inflation Report will be released to the public in a press conference on August 6, 2012. In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for September 27, 2012.

1Calculated by the NBR by excluding administered prices, volatile prices, and tobacco and alcohol prices from the consumer price index.