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BNR maintains the monetary policy rate at 1.75 percent per annum
The National Bank of Romania (BNR, the central bank) Board decided on Thursday to keep unchanged the monetary policy rate at 1.75 percent per annum and to cut the required reserve ratio on foreign exchange liabilities of credit institutions to 12 percent from 14 percent starting with the January 24 - February 23, 2016 maintenance period, shows a BNR press release.
Moreover, the BNR Board decided to keep unchanged at 8 percent the minimum reserve requirements ratio on their leu-denominated liabilities and to pursue an adequate liquidity management in the banking system.
"Statistical data point to the annual inflation rate remaining in negative territory since June 2015, in line with the projection, as a result of broadening the scope of the 9 percent reduced VAT rate to all food items, non-alcoholic beverages and public food services and declining fuel prices. In November 2015, the aggregate consumer price level stood 1.1 percent lower than in the same year-earlier period. The average annual inflation rate came in at -0.4 percent, while the Harmonised Index of Consumer Prices, which is relevant for assessing convergence with the European Union, averaged at an annual -0.3 percent. However, statistical data analysis shows that, leaving aside the impact of lowering the VAT rate, the annual inflation rate would have run close to 2 percent, i.e. inside the ?1 percentage point variation band of the 2.5 percent flat target," reads the BNR's press release.
According to the central bank, the acceleration of the economic growth in Q3 2015 (up to 3.6 pct) was backed by private consumption's growth, due to the rise in nominal incomes of the population, recovery of lending activity, reduction in indirect taxation and higher confidence in the economy. Additionally, except for the impact of agriculture, GDP recorded the fastest year-on-year pace in the post-crisis period, of more than 5 pct.
"At end-2015, foreign exchange reserves amounted to EUR 32 billion, similarly to the level recorded a year before, after making payments on public and publicly-guaranteed external debt service of about EUR 7.2 billion. The reserves were fuelled mainly by EU fund inflows and the government's foreign borrowings. The current account deficit stood further at a sustainable level, namely below 1 percent of GDP, despite swifter increase in consumption, amid the improving services balance and larger transfers from the European Union, being entirely covered by autonomous inflows/direct investment," the BNR writes.
The interest rates on the inter-bank monetary market continued to go down, having reached historic lows and reflected the cuts in the key interest rate and adequate liquidity management.
"Loans in domestic currency have come to prevail, i.e. 50.9 percent of the loan stock in November 2015, compared with a 35.6 percent low in May 2012, ensuring improved monetary policy transmission and the prerequisites for managing risks to financial stability," the central bank mentions.
According to the announced calendar, the next meeting of the BNR's Board on monetary policy will take place on February 5, when the new Quarterly Inflation Report is analyzed.