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February 3, 2023

No surprise on monetary policy – BNR maintains key interest rate at 5.25 pc

At the same time the Central Bank decided during its first AC meeting this year to maintain the level of minimum reserves and to “adequately” manage liquidity.

During the National Bank of Romania’s (BNR) Administrative Council (CA) meeting yesterday, the first meeting this year, it was decided that the Central Bank will maintain the monetary policy interest rate at 5.25 per year, a communiqué issued by BNR on Monday shows. Likewise, BNR’s CA also decided to adequately manage liquidity within the banking system and to maintain the current level of the minimum required reserves for RON-denominated and forex-denominated liabilities. “BNR will closely monitor domestic and global economic developments so as, via an optimal dosage of its instruments, to ensure the fulfilment of its objectives to achieve price stability over the medium term and to maintain financial stability,” the BNR communiqué adds. According to hotnews.ro, the interest rates used by commercial banks should be 1 to 3 per cent higher than the monetary policy interest rate established by BNR. Last year BNR lowered the monetary policy interest rate by 0.75 percentage points to the historic low of 5.25 per year. At the start of May however BNR stopped the cycle of lowering the monetary policy interest rate because of the political changes in Romania that came against the backdrop of intensifying investor fears regarding the future of the Euro Area. “The fiscal policy will be a normal one, in the sense that it will not be dedicated to the continuation of an adjustment, of a massive contraction, but rather towards a consolidation. Through an adequate financial discipline, which means the prudent spending of public funds, there is no need for what we in recent years called austerity,” BNR Governor Mugur Isarescu stated. The head of BNR pointed out that he is making a clear difference between austerity and financial discipline. Central bank governor said the prospect of a positive conclusion of the agreement between Romania and international financial institutions provide a good framework for collaboration for 2013. Regarding the data published by the National Statistics Institute wrongly on GDP, Isarescu was surprised, but said that such situations can be also found in developed countries. The decision does not come as a surprise for market players, considering the Central Bank’s desire to balance the goal of keeping inflationary pressures under control with the goal of coming out of the current economic slowdown period.

CA member: There is the need to “rethink BNR’s goals, mission and role in a balanced manner”

Nevertheless, Nicolae Danila, member of BNR’s CA since 2009 and doctor in economy, made a series of statements for ‘Ziarul Financiar’ last week, referring to the Central Bank’s monetary policy. Danila proposed “the balanced rethinking of the Central Bank’s goals, mission and role” against the backdrop of the economic slump.It was the first time when a member of BNR’s CA expressed his opinion on the need to change the way in which the monetary policy is approached. “At the current stage we shouldn’t be too scared of having an inclusive economic growth (a concept that concerns economic growth “for all,” whose goal is to hike the employment rate, to lower poverty and to improve living standards – editor’s note) even in the context of an inflation rate higher than our targets. It’s true that on the long term the Central Bank is the one that establishes and mainly determines the inflation rate’s trend and level – hence the long-term confidence and expectations concerning the inflation rate, but the lowering of the unemployment rate on the long term has to be determined mainly by structural factors and reforms and by labor market flexibility, which entails fiscal consolidation and economic reforms,” he stated. Subsequently, on January 7, Adrian Vasilescu, Governor Mugur Isarescu’s aide, pointed out that BNR did not want to issue any message ahead of the CA meeting.

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