The National Bank yesterday decided to make no changes in the monetary policy framework set on June 27, keeping both the 8.75% yearly interest and the rates of the minimal mandatory reserves at 20% for RON and 40% for foreign currency.
"Based on the data available at the moment, NBR's Board of Governors has decided to maintain the monetary policy rate at 8.75% a year and to continue to exert a firm control of liquidity on the monetary market through market operations," a release of the central bank reads.
In the absence of any modification of the monetary policy, Governor Mugur Isarescu gave up his habit of reading the release aloud to the press and implicitly of providing further explanations about NBR's evaluations.
After having managed to cause surprise on other occasions, the central bank largely confirmed the expectations of the market yesterday, even though analysts were taking into account the possibility of a new increase of the minimal mandatory reserves.
NBR mentioned the disinflation process was going side by side with the acceleration of the economic growth based both on investments and on dynamic consumer spending sustained by the expansion of lending, without explaining the "paradox" though.
As the release indicates, the monetary policy will not be relaxed over the coming months, mainly because of the fast-paced growth of consumer spending, and of the coming raises in budgetary spending.
"The continuing surplus of demand against the high growth pace of consumer spending and against the anticipated increase in budgetary spending in the months to come call for maintaining a firm grip over the monetary policy in order to make the medium-term disinflation process sustainable," NBR's Board of Governors believes.
Analysts say the interest rate is highly unlikely to go down at least for the next six months. They would rather expect additional increases, depending on the trend of inflation.
NBR admits the inflationary outlook has only improved for the "short term," yet the acceleration of the disinflation pace over the last few months "suggests" to the central bank that the inflationary rate will remain "inside the fluctuation interval of around the 5% target" at the end of this year.
The possibility of attaining the target comes as a surprise even for the central bank, which, in the first half, expected to exceed the interval, forecasting a 6.8% level, especially after panicking as a result of the Government's announcement about an increase in the deficit target to 2.5% of GDP. The 7.4% economic growth in the first half was another surprise as far as NBR is concerned.
As for the persisting current account deficit-widening trend, the National Bank says it is satisfied with how it is financed by inflows in form of foreign direct investment, with the coverage going up to 82.2% in July compared with 77.3% in the same time last year.
The NBR release reconfirms the inflationary targets of 4% for 2007 and of 3.8% for 2008, with the latter first announced on August 9.
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