NBR maintains monetary policy rate at 8.5%

The Board of Governors of the National Bank of Romania (NBR) yesterday decided to maintain the interest rate at 8.5% a year, feeling it was necessary to keep the monetary policy restrictive for a longer period of time.

The central bank will continue to substantially purge the cash surplus through operations on the market, in order to maintain the firm control over liquidity on the monetary market, a NBR press release explains.

The analysts had seen this coming, and said the chances of a new intervention rate increase were slim, as the inflationary rate fell to 6.92% in April from April 2005, the lowest level since 1989.

The central bank says the latest trends of the macroeconomic indicators include the continuation of the disinflation process, a rebound of economic growth and the persistence of the non-sustainable consumption expansion pace. The NBR management believes the bigger than expected inflationary decline in April is temporary and was helped by the tempering of the dynamic of controlled prices, such as energy, drugs, fixed telephony prices and of the volatile food prices in the first few months of this year.

NBR, however, says that the short-term inflationary forecasts have worsened as a result of the impact of the rise in the direct interests on the tobacco and refined alcohol products industry, and of the deterioration of the inflationary expectations due to the uncertainty surrounding the controlled price adjustment schedule.

At the same time, the increase in investments and the fast-paced growth in the population”s consumption, also driven by the lending expansion, have given a boost to the excess demand, while the foreign imbalance has worsened.

Non-governmental lending witnessed a strong growth as competition among banks became fiercer, and as its structure by foreign currencies changed, with the share of RON loans increasing, contributing to the improvement of the monetary policy transmission mechanism.

NBR”s Board of Governors believes implementing a balanced mix of economic policies (monetary, fiscal, revenue and structural policies) is essential for the consolidation of the disinflation and the continuation of the process to achieve convergence with the European Union.

As part of this policy mix, the NBR”s Board of Governors is considering maintaining a restrictive conduct of the monetary policy for a longer period of time, the release adds.

Keeping the interest rate at 8.5%, along with the consolidation of the disinflation process amplifies restrictive monetary conditions, NBR says.

The bank reaffirms its commitment to carefully monitor the economic and monetary developments so as to be able to offset inflationary pressures and make sure the inflation is on track, as scheduled for medium term by adjusting its instruments.

The NBR”s Board of Governors analysed and endorsed the quarterly inflation report to be publicly presented next week. The next meeting of the Board on monetary policy issues will be held on June 27. liviu.chiru@zf.ro