Bancherul - BANCI / ENGLISH / NBR to cut the minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years to zero

In its meeting of March 31, 2009, the Board of the National Bank of Romania analyzed and approved the letter of intent sent to the International Monetary Fund regarding the external financing arrangement with international financial institutions and the European Union.

The NBR Board has also decided the following:
� to keep unchanged the monetary policy rate at 10.00 percent per annum;
� to actively use open-market operations in order to ensure an adequate management of liquidity in the banking system;
� to cut the minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years to zero from 40 percent at present, starting with the May 24-June 23, 2009 maintenance period;
� to leave unchanged the existing minimum reserve requirements ratios on leu-denominated liabilities of credit institutions as well as on foreign-currency denominated liabilities with residual maturities of up to two years.

The NBR Board will continue to monitor domestic and global economic developments so that through an adequate use of its available instruments to ensure the fulfilment of its objectives in what concerns attaining and maintaining price stability in the medium term as well as ensuring financial stability.

The analysis of the most recent statistics show an increase in the annual inflation rate and a slowdown of economic growth as a result of lower exports and external financing against the background of deepening world economic and financial crisis.

The annual inflation rate climbed to 6.89 percent in February 2009 from 6.3 percent last December due to increases in some administered prices, fuel and services against teh backdrop of leu depreciation in the context of heightened risk aversion of investors with regard to Central and East European economies. The adjusted annual CORE2 inflation rate � calculated by excluding the impact of administered and volatile prices (vegetables, fruit, eggs and fuel) as well as the effect of vice tax � also rose to 6.6 percent last months from 6.3 percent in December 2008.
In the monetary area it is worth noting a relative stagnation of intermediation in the context of a significant slowdown of credit to the private sector.
The above-mentioned factors reveal the need to maintain a prudent monetary policy stance given the need to continue the adjustment of the external deficit towards sustainable levels on the medium term and in a bid to avoid excessive exchange rate volatility.

In line of available data and given the need to ensure that interbank money market rates will continue to get closer to the monetary policy rate, the NBR Board has decided to keep unchanged the monetary policy rate at 10.00 percent and to actively use open-market operations in order to ensure an adequate management of liquidity in the banking system.

As part of a gradual alignment to the European Central Bank standards and in a bid to ensure sustainable financing of the Romanian economy with a focus on sectors with longer-term development prospects, the NBR Board decided to reduce the minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years to zero from 40 percent at present, starting with the May 24-June 23, 2009 maintenance period. Meanwhile, the NBR Board decided to leave unchanged the existing minimum reserve requirements ratios on leu-denominated liabilities of credit institutions as well as on foreign-currency denominated liabilities with residual maturities of up to two years.
The NBR Board believes that the implementation of the balanced macroeconomic policy mix agreed under the precautionary external financing arrangement will allow a gradual and prudent adjustment of the monetary policy in line with the resumption of the disinflation process and with the consolidation of financial stability.
The NBR it will continue to monitor domestic and global economic developments so that through an adequate use of its available instruments to ensure the fulfilment of its objectives in what concerns attaining and maintaining price stability in the medium term as well as ensuring financial stability.
In line with the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for May, 6 2009 when a new quarterly Inflation Report will be analyzed.