Bancherul - BANCI / ENGLISH / NBR: The prolonged real negative annual dynamics of credit to the private sector is worth noting

In its meeting of January 5, 2011, 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 will vigilantly monitor 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 annual inflation rate fell marginally to 7.73 percent in November 2010. The analysis of the latest developments in macroeconomic indicators reveals that the annual inflation rate will be close to 8.0 percent at the end of 2010, in line with the NBR forecasts.

As the first-round effects of the VAT rate hike fade out, a gradual reduction of the annual inflation rate is expected this year, when it is forecast to reach 3.4 percent. In order to prevent second-round effects of the VAT rate hike, the monetary policy stance aims to firmly anchor inflation expectations.

The prolonged real negative annual dynamics of credit to the private sector is worth noting, despite a persistent improvement of liquidity in the banking sector and given the persistence of a significant spread between interbank rates and lending rates for companies and households, also amid uncertainties related to the legal framework of banking activities.

These developments and uncertainties, along with the risks related to the second-round effects of VAT rate hike, whose impact may be heightened by public debates on a seasonal increase in food prices, remain worrying.

From this perspective, the maintenance of a prudent monetary policy stance is needed in order to preserve the prospects of a return of the annual inflation rate towards the medium-term targets.

In this context, in a bid to firmly anchor inflation expectations, the NBR Board decided to leave unchanged the monetary policy rate at an annual 6.25 percent and to continue to pursue an adequate management of liquidity in the banking system. Moreover, the NBR Board decided to maintain the existing levels of minimum reserve requirement ratios on both leu-denominated and foreign currency-denominated liabilities of credit institutions.

These decisions are aimed at strengthening the prospects of a sustainable return to disinflation, which will pave the way for a sound economic recovery.

In this context, with a view to ensuring sustainable nominal and real convergence, the implementation of objectives set under financial accords with international institutions, especially those regarding the ongoing fiscal consolidation and structural reforms, is essential. These objectives are seen enhancing credibility given that the adjustments so far have helped correct macroeconomic imbalances, particularly the external deficit.

The NBR Board is restating that the central bank will vigilantly monitor 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. These will pave the way for a resumption of sustainable economic growth.

In line with the announced calendar the next NBR Board meeting dedicated to monetary policy issues is scheduled for February 3, 2011, when a new quarterly Inflation Report is to be examined.