Bancherul - BANCI / ENGLISH / NBR keeps unchanged the monetary policy rate at 6.25

In its meeting of September 29, 2010, the Board of the National Bank of Romania decided the following:
• to keep unchanged the monetary policy rate at 6.25 percent per annum;
• to ensure adequate management of liquidity in the banking system;
• to maintain the existing levels of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.

The NBR Board is restating that the central bank is vigilantly monitoring domestic and global economic developments so as, via an adequate use of its available instruments, to ensure the fulfilment of its objectives of achieving and maintaining price stability in the medium term as well as financial stability.

The standard value added tax hike starting from July 1, 2010, triggered an upswing in the annual inflation rate to 7.58 percent in August versus 7.14 percent the previous month and 4.38 percent in June. At the same time, annual adjusted CORE2 inflation rose to 4.5 percent in August after it had stayed around two percent in the first half of 2010.

The increase in annual inflation rate has nevertheless been marginally lower than that projected in the most recent forecasting exercise, reflecting a relatively slower pass-through of the VAT hike to consumer prices, given the persistence of the negative output gap. On the other hand, concerns remain regarding the potential significant second round effects of the VAT increase.

The analysis of macroeconomic developments shows a continued fast increase in exports, also reflected in import flows, along with a sustained industrial output dynamics, but also the fact that the annual dynamics of indicators relevant for the trends in the domestic demand stayed in the negative territory. In the monetary area, it is worth noting that the real annual expansion of lending to the private sector remained negative while its leu and foreign-currency denominated components have exhibited divergent evolutions, as well as a continued rapid advance of credit to the government.

The short-term outlook indicates risks related to evolutions in administered and volatile food prices, in a seasonal context and due to base effects, as well as the persistence of uncertainties regarding the impact of fiscal consolidation measures, which, amid the current domestic social and political developments, require the maintenance of a prudent monetary policy stance in a bid to firmly anchor inflation expectations.

In this context, the NBR Board has decided to keep unchanged the monetary policy rate at 6.25 percent per annum 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 decided to ensure adequate management of liquidity in the banking system.

The resumption of disinflation with a view to fulfilling the medium-term inflation targets and ensuring a sustainable economic growth essentially hinges on a firm implementation of the macroeconomic policy mix and of the structural reforms in line with commitments set under the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions.

The NBR Board is restating that the central bank is vigilantly monitoring domestic and global economic developments so as, via an adequate use of its available instruments, to ensure the fulfilment of its objectives of achieving and maintaining price stability in the medium term as well as financial stability.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for November 2, 2010, when a new quarterly Inflation Report is to be examined.