The National Bank of Romania Board discussed and adopted the monetary policy decision, based on the data and analyses on current and future macroeconomic, financial and monetary developments submitted by the specialised departments, as well as on other available domestic and external information.
As shown in the minutes of the meeting of the National Bank of Romania Board on 8 Jan. 2019 released on 15th of January 2019, Board members noted that the annual inflation rate had posted a faster decline in the first two months of 2018 Q4, falling to 4.25 percent in October from 5.03 percent in September and to 3.43 percent in November, i.e. below the forecast and inside the variation band of the flat target. As expected, the sizeable downward correction had owed mainly to the disinflationary base effects which, during that period, had strongly marked the dynamics of volatile and administered prices and, to a lesser extent, the change in tobacco product prices. Additional influences had stemmed from the decreases seen in November by fuel prices and prices of fruit and vegetables.
Relative to monetary conditions, Board members showed that the spread between the key interbank money market rates and the monetary policy rate had gradually narrowed over the last two months of 2018, mainly amid the change in liquidity conditions, the inflation dynamics and the likely adjustment in banks’ expectations on the evolution of some monetary policy parameters.
The spread was deemed to have remained, however, substantial, the same as the interest rate differential, which had further supported the attractiveness of investments in the domestic financial sector, also reflected by the relative stability of the EUR/RON exchange rate until towards end-2018, even amid a widening current account deficit. Yet, reference was made to the heightened risks arising, in that context, from a possible sudden change in the global financial market sentiment or in investor risk perception vis-à-vis the local economy and financial market.
According to the minutes, attention was given to the tax on credit institutions’ financial assets, with discussions touching on the characteristics and possible implications for monetary policy and lending, as well as for financial stability and macro-stability in general. Among others, Board members were of the opinion that setting the tax depending on ROBOR rates impaired the effectiveness and flexibility of monetary policy, and implicitly the central bank’s capacity to keep inflation under control, all of which had proven essential in bringing the annual inflation rate back inside the variation band of the target in 2018.
Moreover, it was shown that the adverse effects of the tax might be compounded by those of the recently approved legislative initiatives on the banking sector, whose provisions were likely to affect lending and monetary transmission, but also banks’ stability, as well as the economy’s external financing costs. Some Board members suggested that the National Committee for Macroprudential Oversight be convened in order to examine the effects of the new measures regarding the banking system and to make recommendations to public authorities.
For further information: National Bank of Romania – Minutes of the monetary policy meeting