NBR Lowers Monetary Policy to 7.25 Percent

In its meeting of May 2, 2007, the Board of the National Bank of Romania has decided the following:

To lower the monetary policy rate to 7.25 percent per annum from 7.5 percent;

To pursue an adequate control of liquidity via open-market operations in line with money market conditions;

To leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions and to continue to align its minimum reserve requirements regulation to the standards of the European Central Bank.

The NBR Board has examined and approved the quarterly Inflation Report, which will be released to the public in a press conference scheduled for May 4, 2007.

The analysis of macroeconomic indicators confirms that disinflation continued, faster than it had been forecasted, with the annual inflation rate falling to 3.66 percent in March versus 4.87 percent in December, due to a slower advance in administered prices and a reduction of volatile prices.

Moreover, core inflation, excluding the effect of the vice tax, has fallen to 2.8 percent, reflecting both the fact that broad monetary conditions have remained restrictive, as well as a favorable impact of Romania"s accession to the European Union via increased competition on the retail market.

Statistics show a consolidation of investment as the main driver of economic growth in the last part of 2006 and a widening of the current account deficit in the context of persistently high dynamics of internal absorption as well as of a catching-up in the real convergence process.

Non-government credit expansion has remained brisk against the background of a relative slowdown in the pace of increase in leu-denominated credit and of a revival of foreign currency lending growth.

Broad monetary conditions have remained restrictive and are adequate to the aim of attaining medium-term disinflation targets in the context of the recent adjustment of the levels of monetary policy instruments, of faster leu appreciation and of tight minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions.

In light of the available data, the NBR Board has decided to lower the monetary policy rate to 7.25 percent per annum from 7.5 percent and to pursue an adequate control of liquidity via open-market operations in line with money market conditions.

The NBR Board has also decided to leave unchanged the existing minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions and to continue to align its minimum reserve requirements regulation (Regulation No. 6/2002) to the standards of the European Central Bank by removing in transit amounts from the reserve base and setting a zero reserve ratio applicable to savings banks for housing. Changes to the Regulation will come into force after their publication in the Official Gazette.

The NBR reiterates that it will continue to vigilantly monitor the developments in macroeconomic indicators and their outlook in order to ensure that monetary conditions are in line with the achievement of medium-term disinflation objectives and to consolidate the convergence process with the European Union, relying also on the support from other components of the macroeconomic policy mix.

The NBR Board has examined and approved the quarterly Inflation Report, which assesses the recent macroeconomic context and inflation outlook, as well as the main challenges and risks to monetary policy in the coming period. The new quarterly Inflation Report will be released to the public in a press conference scheduled for May 4, 2007.

According to the announced calendar, the next NBR Board meeting dedicated to monetary policy is scheduled for June 25, 2007.