The National Bank of Romania (NBR) has decided to maintain the monetary policy rate at 8.5% and continue to engage in purging substantial amounts of excess cash through operations on the market, NBR Governor Mugur Isarescu told a news conference yesterday.
“NBR”s Board of Governors reaffirms its commitment to utilise the entire set of instruments available to attain the inflation target,” Isarescu said.
The management of the central bank met yesterday in order to discuss monetary policy measures.
The central bank increased the intervention rate to 8.5% in February. This is the main monetary policy rate and is used to attract one-month deposits in RON from commercial banks.
NBR”s goal for this year is a 5% inflation rate, give or take one percent.
Inflation reached 8.6% in December, which was slightly higher than the margin of fluctuation set by the central bank last year of 6.5-8.5%. The effective rate at which the NBR did its purging currently stands at 8% but the central bank intends it to reach 8.5%.
This is what NBR Governor Mugur Isarescu said yesterday after the meeting of the Board of Governors concerning the monetary policy.
“I don”t think there were any (good) reasons for an increase in the monetary policy rate, after the inflationary trend in February. Such a move would only have boosted their purging costs needlessly. The annualised inflation will go down over the next few months, and may reach approximately 7% in April, so that monetary policy restrictiveness will increase, with the actual purging rate being higher,” commented Ionut Dumitru, head of research with Raiffeisen Bank.
Radu Craciun, ABN Amro Bank chief analyst in turn says, “There were arguments in favour and against a new raise in interest, but the lower than expected inflation rate in February probably prevailed. A new opportunity to raise the interest will arise at the next meeting in May, when more macroeconomic data will have become available.
The game with inflation is still being played, and the exchange rate seems to be a much weaker inflationary anchor than in 2005.”
The central bank buys and sells certificates of deposit maturing in three months as part of its monetary operations, whose interest is generally lower than the monetary policy rate.
The central bank governor explained that the effective purging rate in January amounted to 6.72%.
Following the decision to raise the interest in February, the NBR witnessed a slight increase in the rates paid by banks for the deposits attracted from clients, as well a continued reduction of the interests on loans, fuelled by the increasingly fierce competition on the market.
Isarescu added that the inflationary pressures will maintain, at least in the short run, with possible shocks caused by adjustments of the controlled prices and excise duties also in store.
The next monetary policy meeting of the Board of Governors will be held on May 11. razvan.voican@zf.ro