Press Release of the Board of the National Bank of Romania

In its meeting of 5 November 2015, 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 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 Board has examined and approved the Inflation Report, which will be released to the public in a press conference scheduled for 9 November 2015.

The latest statistical data point to the annual inflation rate remaining in negative territory. It followed however a path below the projected one, due chiefly to a larger-than-expected drop in fuel prices.

In September 2015, the annual inflation rate stood at -1.7 percent, as a combined effect of lower volatile prices and the broadening of the scope of the 9 percent reduced VAT rate to all food items, non-alcoholic beverages and public food services as of 1 June 2015.

The average annual inflation rate fell to zero, while the average annual inflation rate based on the Harmonised Index of Consumer Prices, which is relevant for assessing convergence with the European Union, went down to 0.2 percent, from 0.5 percent in August 2015.

Turning to economic activity, the relative slowdown in second-quarter growth was not attributable to the main aggregate demand components, as private consumption and investment made the largest contributions to real GDP growth in the post-crisis period, while net external demand had a smaller negative contribution. Statistical data also illustrate that the dynamics of nominal wage earnings and unit labour costs in the industrial sector stayed on an upward trend.

The assessment of monetary indicators reveals a consolidation of the annual growth in credit to the private sector, solely on the back of a faster pick-up in leu-denominated loans. Their share in the loan stock reached 50.2 percent, outstripping, for the first time in about eight years, the share of forex loans. This is beneficial for the monetary policy transmission mechanism and for mitigating risks to financial stability.

The general context rendered the adoption of a monetary policy decision more difficult. Domestically, the process to appoint a new cabinet fuels the uncertainty surrounding the macroeconomic policy mix, especially as the drafting of the 2016 budget is still pending.

The external environment also remains fraught with uncertainties, stemming mostly from the economic developments in China and other major emerging economies, with an impact on economic growth in the euro area and elsewhere. Adding to this are the further diverging monetary policy stances of the world’s major central banks.

Under the circumstances and based on the currently available data, the Board of the National Bank of Romania has decided to keep unchanged the monetary policy rate at 1.75 percent per annum, to further 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.

In today’s meeting, the NBR Board has examined and approved the quarterly Inflation Report. The new forecast reconfirms the outlook for the annual inflation rate to remain in negative territory over the next three quarters and then to return to positive values, which will stand below the lower bound of the variation band of the flat target until the beginning of 2017.

The NBR Board is restating that its decisions aim to ensure price stability over the medium term, while safeguarding financial stability. Furthermore, the NBR Board considers that a balanced economic policy mix and the progress in structural reforms are pivotal to preserving macrostability, ensuring lasting economic growth, carrying on convergence with the European Union, as well as enhancing the resilience of the Romanian economy to potential shocks or adverse conditions worldwide.

The NBR reiterates that the adequate use and dosage of all its available tools, amid close monitoring of domestic and global economic developments, will ensure the achievement of the overriding objective of maintaining price stability over the medium term, along with preserving financial stability.

The new quarterly Inflation Report will be presented to the public in a press conference on 9 November 2015. In line with the approved calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 7 January 2016.