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Central Bank: Inflation drops to 7.93% in June thanks to lower volatile prices for food

The annual inflation rate dropped to 7.93 percent in June from 8.34 percent in May, as a result of the lower volatile prices for food, reads a press release from the National Bank of Romania (BNR).

The central bank mentions that the level of 7.93 percent includes the first-round effect of the increase in the standard VAT quotation. 'However, the annual core inflation rate remained at 4.7 percent, a level reported back in April, the deceleration being triggered by the inertia of the previous adverse shocks and by the presence of a basic effect on the segment of processed food. The favourable trend of the volatile prices for food jointly with the complete dispel of the first-round effects of the shock set off by the VAT increase in July 2010 are meant to lead to speeding up the process of disinflation over the months to come,' the document reads. According to the quoted source, the latest statistics reveal that the industrial production and export kept going up. 'Nevertheless, the deficit in the aggregate demand is still on, and the credits loaned to the private sector, mainly corporations, are still low in the context of the risks related to the evolution of the sovereign debts crisis in the eurozone, but also to some signals regarding a relatively slower economic revival in this area. The Board of Directors of the central bank examined and passed the quarterly report on inflation, a document evaluating the recent macroeconomic context, analyses the inflation prospects and identifies the main challenges and constraints the monetary policy will be facing over the period to come. The updated prognosis of the macroeconomic evolutions reveal a better short-term prospect for inflation, after the first-round effects of the VAT increase dispelled, in line with the BNR forecast on the end of the cycle of the effects on economy of the shock of the offer triggered by the higher VAT, after the tension on the international food markets has cooled off and in the light of estimated favourable impact of the local agricultural offer, reads the release of the central bank. On the other hand, the risks incurred by the medium-term prospect of inflation are still significant, with the calendar and the adjustment margin of the administered prices as major sources, the volatility of the capital flow in the context of the possible evolution of the sovereign debts crisis in the EU and the United States, as well as the uncertainties raised by the behaviour of the international prices of raw materials. 'In this context, the Board of Directors of the central bank decided upon keeping the monetary policy interest rate at 6.25 percent a year, upon the further proper management of liquidity in the banking system and upon maintaining the current levels of the minimum required reserves ratios for the liabilities in the domestic currency and in foreign currency of the credit institutions. The trend of the monetary policy aims to maintain the real monetary conditions to anticipate the inflation and to achieve a convergence of the inflation rate towards the medium-term targets. Besides, in the context of persistent risks posed by a longer sovereign debts crisis, observing the commitments pledged by the Romanian authorities within the finance agreements with the international institutions, especially those regarding the fiscal consolidation and the correlation of the salaries to work productivity, is essential to provide a revival of the Romanian economy on a healthy basis within the process of nominal and real convergence. In this context, the ongoing wary attitude of the monetary policy is called for not only to meet the significant risks that might be set off by inflation, buy also in the case of a higher volatility of the capital flows that are directed towards the emergent economies,' reads the document. The BNR Board of Directors reassures that the central bank will still monitor the evolution of the local and international environment, so that they should lead and maintain prices stable on medium term and reach the financial stability, by a proper use of the instruments they possess, Agerpres reports. 

BNR's Vasilescu: Keeping monetary policy rate unchanged provides a safety belt

The decision of the Administration Board of the National Bank of Romania (BNR) to keep the banks' monetary policy rate unchanged at 6.25 percent per annum is providing a safety belt, Adrian Vasilescu, adviser to BNR Governor Mugur Isarescu, told a commercial television channel on Wednesday. 'This decision is a safety belt, because by not raising the interest rate it will not determine banks to increase loan costs and by not cutting it, it also does not allow inflation to ran havoc on the purchasing power of Romanians,' Vasilescu explained. About a recent statement by chief of the International Monetary Fund (IMF) mission for Romania Jeffery Franks that inflation is quite high in Romania and it can be fought against with a higher reference interest rate but it is up to the BNR to decide, Vasilescu said the BNR's decision came after various analyses, acknowledging that inflation is very high but some things have to be considered. 'First important thing is that any way we look at it, from any angle, inflation in Romania has no monetary causes, and consequently increasing the interest rate would not be useful. BNR did not relax its monetary policy in the interest area, as some have claimed. The interest rate was left unchanged at 6.25 percent, which means BNR believes the annual inflation rate will be increasingly smaller in the second half of the year,' said Vasilescu. 

Sursa: http://www.actmedia.eu

Tags: policy monetary international interest vasilescu context bnr volatile inflation prices percent romania central