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March 23, 2023

BNR: Analysis of monetary policy decisions (II)

The main risks related to the current projection stem from the persistence of uncertainty associated to external developments generated by the situation in Greece and the Euro Zone, by regional geopolitical tensions and by the divergence between the monetary policies of the world’s main central banks.

Internally, in view of the need to enhance the Romanian economy’s capacity to ease external shocks, the concerns are related to the consistent implementation of the macroeconomic policies mix agreed with international institutions and to the speeding-up of structural reforms. Uncertainties also stem from the expected effects of changes brought to the fiscal framework, but also from the influence exercised by the characteristics of the agricultural year and the timetable of adjustments brought to regulated prices.

Based on currently available data, the BNR’s Board of Directors decided to lower the monetary policy interest rate from 2 to 1.75 per cent per year starting on May 7, and to continue to properly manage the banking system’s liquidity. At the same time, in order to lower the volatility of interest rates on the interbank monetary market and to consolidate the transmission of the monetary policy rate’s signal, the Board decided to narrow the symmetrical corridor of interest rates on standing facilities around the monetary policy interest rate of +/- 1.5 per cent from +/- 1.75 per cent. Starting on May 7, the interest rate for the deposit facility will remain at 0.25 per cent, while the lending facility interest rate (Lombard) will be lowered to 3.25 per cent.

In order to continue the gradual harmonization of the mandatory reserve requirements mechanism with European Central Bank standards, the Board has decided to lower mandatory reserve requirements for RON-denominated liabilities from 10 to 8 per cent starting with the May 24 – June 23 period.

The outlook of an inflation rate close to zero per cent in the next 3-4 quarters means these monetary policy decisions will stimulate crediting in a manner liable to support sustainable economic growth and, at the same time, to maintain interest rates on deposits within real positive territory.

The Board reaffirms that its decisions seek to ensure price stability over the medium term while maintaining financial stability. At the same time, the Board considers that a balanced mix of macroeconomic policies, the acceleration of structural reforms and the maintenance of a link between productivity and salaries, corroborated with sustainable financial leveraging and an appropriate interest rate for deposits are essential for consolidating the Romanian economy in its process of convergence with the EU.

The BNR reiterates that the adequate use and dosage of all the tools at its disposal, against the backdrop of close monitoring of internal and international economic system developments are liable to ensure the fulfilment of the fundamental goal of price stability and of maintaining financial stability over the medium term.

The new inflation rate quarterly report will be presented at a press conference on May 8. In line with the announced timetable, the next Board meeting dedicated to monetary policy issues will take place on July 1.

(BNR’s Board of Directors)


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