Historic low: Rate of monetary policy interest cut down to 3.5 pc a year

We are well positioned in terms of monetary policy now”, the governor of the Central Bank, Mugur Isarescu stated.

The Board of the National Bank of Romania (BNR) on Tuesday decided to cut the rate of the monetary policy interest to 3.5 per cent a year, from 3.75 per cent, starting on February 5, 2014, said the central bank in a press release. According to the above-mentioned source, in the meeting of February 4, 2014, the BNR Board also decided to maintain the current levels of the rates of the mandatory minimum reserves to be applied to the liabilities in lei and foreign currency of the lending institutions and to properly manage the liquidity of the banking system.
The BNR Board also examined and approved the quarterly report on inflation, a document that will be presented in a news conference to be organized on February 6, 2014.
The monetary policy interest rate will remain stable in the future, the governor of the National Bank of Romania (BNR), Mugur Isarescu announced yesterday in a press briefing that followed a meeting of the Board of BNR on monetary policy matters. “Now we are well positioned, so we do not move up, or down the monetary policy rate. If we have important flows, we prefer to leave a bigger volatility and use the interest as reference, but also as anchor for inflationist anticipations, so that we keep inflation within the targeted interval,” the BNR governor explained. Internally, the risks are generated by the dynamic of implementing the reforms during this electoral year and the successive reductions of the monetary policy rate were reflected with some delay in the evolution of the rates of interests to the loans granted to the real sector,” Isarescu mentioned.
Among others, Isarescu stressed that exports represented in 2013 the main driver of the economy, while the recovery of consumption is estimated to be gradual, the governor added. “The average annual inflation rate dropped to 4 pc in December and the harmonised annual average rate diminished to 3.12 pc,” Isarescu added, Hotnews.ro reports.

Since last summer BNR has decided five times to cut the key interest. Thus, the BNR Board in early July 2013 decided to cut the key interest to 5 per cent from 5.25 per cent a year and in August to 4.5 per cent from 5 per cent a year, according to BNR’s press release. Another two cuts of the monetary policy interest, by 0.25 percentage points each, were decided on in September and November, thus the key interest amounted to 4 percent.
In yesterday’s meeting, the BNR Board has examined and approved the quarterly Inflation Report, which reiterates the outlook for a sharp, albeit temporary, decline in the annual inflation rate in the first half of 2014, amid the protracted transitory impact of the plentiful harvest in 2013 and the lower VAT rate for some bakery products. Subsequently, the annual inflation rate is expected to return inside the variation band of the flat 2.5 per cent target, on the back of the statistical base effect, and then to remain in the upper half of this band, largely due to administered price adjustments and the gradual narrowing of the negative output gap as economic activity picks up.
Risks associated with the new projection relate to capital flow volatility amid the variability of investors’ risk appetite and the changes in exposure to the emerging economies, given the decisions taken by major central banks across the world and the ongoing cross-border deleveraging in the banking system. On the domestic front, relevant risks are triggered by the dynamics of implementing structural reforms in the context of the upcoming elections.

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