Following is the statement released by the National Bank of Romania:
In its meeting of July 1, 2014, the Board of the National Bank of Romania decided the following:
- to keep unchanged the monetary policy rate at 3.5 percent per annum;
- to pursue an adequate liquidity management in the banking system;
- to lower the minimum reserve requirement ratio on foreign currency-denominated liabilities of credit institutions to 16 percent from 18 percent starting with the July 24-August 23, 2014 maintenance period, while keeping unchanged, at 12 percent, the ratio on leu-denominated liabilities.
The NBR is restating that the adequate use of its available tools amid a close monitoring of domestic and global economic developments is aimed at ensuring price stability over the medium term and financial stability.
The analysis of the latest macroeconomic data shows the annual inflation rate recording low levels, following in the short run a lower path than previously projected, under the impact of one-off factors (developments in volatile prices, particularly volatile food prices, the nominal appreciation of the local currency) and amid the persistent negative output gap and improved inflation expectations.
The consolidation of this path in the medium term is still uncertain.
The annual inflation rate fell to a historic low of 0.94 percent in May 2014 from 1.21 percent in the previous month. At the same time, the average annual inflation rate came in at 2.1 percent in May 2014 compared to 2.5 percent in April, while the average annual inflation rate based on the Harmonised Index of Consumer Prices – which is relevant for ensuring comparability at European level and assessing convergence with the European Union – continued to decrease, reaching 1.8 percent in May versus 2.1 percent in April.
Loans to the private sector further recorded a negative annual growth rate on the back of divergent developments in its components. Thus, it is worth noting the faster positive dynamics of leu-denominated loans, fostered also by the lower interest rates on new loans, reflecting the successive monetary policy rate cuts. At the same time, mention should be made of the persistent contraction in foreign currency-denominated loans whose share in total loans narrowed to 58.6 percent from 62.4 percent in June 2013.
The gradual recovery of saving continued, the consolidation of this trend in the medium run being important in view of the faster cross-border deleveraging and the need to ensure stable financing sources for the resumption of lending.
The improved perception of investors and rating agencies on the Romanian economy, due to the favourable developments witnessed by its fundamentals, has led to an increase in capital inflows, as also reflected in the domestic currency appreciation.
International reserves have posted adequate levels, while most of the IMF loans taken in 2009-2010 have been repaid. At the same time, on the money market, the net liquidity surplus has been on the rise and interbank rates have run at levels below the monetary policy rate.
These developments and the inflation outlook enable the central bank to adjust the monetary policy stance, also via the programme of gradual, medium-term alignment of minimum reserve requirement ratios to European standards, while effectively anchoring medium-term inflation expectations and closely monitoring domestic and external developments.
In today’s meeting, based on currently available data, the Board of the National Bank of Romania decided to keep unchanged the monetary policy rate at 3.5 percent per annum and to further pursue adequate liquidity management in the banking system. The NBR Board has also decided to lower the minimum reserve requirement ratio on foreign currency-denominated liabilities of credit institutions to 16 percent from 18 percent starting with the July 24-August 23, 2014 maintenance period, while keeping the ratio on leu-denominated liabilities unchanged at 12 percent.
The prudent monetary policy stance and the proper dosage of its toolkit, in line with domestic and external developments, may sustainably ensure medium-term price stability in accordance with the multiannual inflation target, along with paving the way for balanced and lasting economic growth and for consolidating convergence with the European Union.
In this context, the implementation of the structural reform and policy mix agreed under the external financing arrangements with the international institutions, together with balanced social and political developments during the 2014 election year, is likely to consolidate the stability of the Romanian economy, thereby enhancing its resilience to external shocks.
The NBR is restating that the adequate use of all its available tools, amid a close monitoring of domestic and global economic developments, will ensure the achievement of the overriding objective of maintaining price stability over the medium term and financial stability.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for August 4, 2014, when the new quarterly Inflation Report is to be examined.
-END OF STATEMENT
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