- The BNR Board reiterates that its decisions aim to ensure price stability over the medium term in a manner supportive of sustainable economic growth, also via the rebound in lending, while safeguarding financial stability
The latest macroeconomic data point to the annual inflation rate remaining below the lower bound of the variation band of the flat target, along with the pick-up in economic growth in 2015 Q1, driven by stronger final consumption and investment.
In May 2015, the annual inflation rate climbed to a higher-than-expected 1.2 percent, as volatile prices saw a relative step-up in their annual increase, while the average annual inflation rate was stuck at 0.9 percent for the third month in a row. The average annual inflation rate based on the Harmonised Index of Consumer Prices, which is relevant for assessing convergence with the European Union, stayed put at 1.1 percent.
The assessment of monetary indicators reveals faster growth of leu-denominated loans, amid the successive policy rate cuts, the gradual reduction in minimum reserve requirements ratio on credit institutions’ leu-denominated liabilities and adequate liquidity management in the banking system. Forex loans (stocks) contracted further, their share in total credit to the private sector reaching 53.7 percent, a record low since December 2007, from a peak of 64.4 percent in May 2012, which helps mitigate the risks to financial stability. This development is beneficial for consolidating monetary policy transmission and for strengthening the resilience of the Romanian financial system.
At the same time, the exchange rate of the leu posted relatively larger fluctuations, on the back of tensions relative to the situation in Greece and international financial market volatility.
The most recent assessments reconfirm the outlook for the annual inflation rate to enter and remain in negative territory over the short term, as a result of broadening the scope of the reduced VAT rate to all food items and public food services as of 1 June 2015, but also amid the narrowing of the negative output gap at a quicker pace and the rise in unit labour costs.
All these, combined with the current state of affairs, i.e. the situation in Greece, uncertainty surrounding Romania’s agreements with international institutions and the divergence between the monetary policy stances of major central banks worldwide, call for a prudent reconsideration of the monetary policy cycle.
In light of the above and based on currently available data, the Board of the National Bank of Romania has decided to keep the monetary policy rate unchanged at 1.75 percent per annum, to continue to pursue an adequate liquidity management in the banking system and to maintain the present levels of the minimum reserve requirements ratios on both leu- and foreign currency-denominated liabilities of credit institutions.
The NBR Board reiterates that its decisions aim to ensure price stability over the medium term in a manner supportive of sustainable economic growth, also via the rebound in lending, while safeguarding financial stability.
The prudent monetary policy stance and the preventive measures taken in the area of prudential supervision of the banking sector are meant to reinforce the Romanian economy’s capacity to withstand external shocks.
The NBR is closely monitoring the domestic and international economic developments in order to ensure an adequate use and dosage of its available instruments so as to achieve the price stability objective in the medium term and maintain financial stability.
According to the approved calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for 4 August 2015.