NBR's Board of Governors decided to cut the intervention rate for the second time this year from 16.5% to 15.75%, after having analysed the recent developments in the economy and in the financial and monetary sectors, as well as their prospects for 2005.
The intervention rate is the interest rate paid by the central bank for the deposits attracted from banks as part of monetary policy operations.
This rate has been gradually decreasing since mid last year when it was of 21.25%.
NBR raised 25,000bn ROL from the interbank market in form of three-month certificates of deposit on Thursday for an average of 10.94% rate per annum, with 11.74% as the maximum rate. The average interest was 6.1% lower than in the previous auction held in December.
The National Bank of Romania's Board on Thursday debated the economic policies set by the Government together with the NBR and agreed upon during the talks with the International Monetary Fund, a central bank release shows.
Backed by a steady expansion of all the components of the domestic demand, the economic growth is estimated at about 8% for 2004 and at more than 5% for 2005. Concurrently, the disinflation process maintained close to the target pursued, with the annual inflationary rate going down to 9.3% in December 2004. Disinflation also continued in January 2005, with the increase in prices for the last 12 months going down below 9%.
Monetary sector-wise, the developments are positive, as well. The money stock was 28% higher early in 2005 than in the beginning of 2004 in real terms, confirming a sound economy remonetisation process, largely based on the increase in savings kept in domestic currency, against an obvious disinflation.
As for lending, it kept increasing, yet did it at a moderate pace, which is sustainable in the long run. Analysed by components, the development of the lending still maintains certain risky trends likely to generate imbalances.
Total non-governmental lending in 2004 increased by 26% in real terms. On the other hand, the foreign currency component, calculated in euros witnessed a 57% increase, which is even more encouraging for imports and may generate prudential problems for banks and their clients.
Romania's main macroeconomic problem is that the expansion of the domestic demand significantly outruns the current capability of the domestic production to accommodate it. Therefore the current account deficit for 2004 reached nearly 7.7% of GDP, if calculated in line with the revised methodology, against the about 6.7% based on the previous methodology. Although this deficit was healthily funded by autonomous capital inflows, and the reserves of the National Banks were able to grow substantially both in 2004 and in January 2005, equalling five months of imports, a prudent economic conduct requires adopting measures that would allow attaining three goals at the same time. These goals are: economic growth that can be sustained on long term, keeping the current account deficit within reasonable limits and continuing the disinflation process in order to attain the 2-3% needed in view of EU accession.
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