NBR's policy allows inflation targeting

The National Bank of Romania’s use of interest rates as an instrument of monetary policy has improved in effectiveness over recent years, as has the pass-through from policy to market rates, supporting the gradual shift towards inflation targeting, an IMF study shows. According to an IMF working paper prepared by Alexander Tieman and authorised for distribution by the IMF negotiator for Romania, Emmanuel van der Mensbrugghe, the pass-through in Romania is in line with that of other countries in the region. This means Romania could potentially follow the lead of some of its peers by introducing inflation targeting, provided that the monetary authorities build up the necessary forecasting and communications capacity. However, the working paper explains how the Romanian monetary system still has some specific characteristics that could potentially further weaken the interest rate instrument. ZF