Inflation Targeting-Fundamental Objective of the Monetary Policy of Romanian National Bank (BNR)

After the 80’s, a lot of central banks have shifted from the evolution of the monetary aggregates towards inflation targeting, case in which have been eliminated the intermediate objectives of the monetary policy. Hereby, in the 90’s, the growing preoccupation for ensuring price stability as a premise for long-term economic growth has materialized in the adoption of the central banks from many countries of a new monetary policy strategy. Direct inflation targeting Initially, the strategy has been adopted by some countries with a developed economy. Direct inflation targeting has become after the crises from Latin America and Asia, an attractive alternative also for the emerging economies. Romania is the 22nd country that has adopted the direct inflation targeting strategy. For now, NBR considers the inflation targeting as being the adequate medium-term monetary policy framework, leading in the same time at the increase of independence and credibility. This monetary policy strategy is applied in Romania starting from 2005, until, introducing the Exchange rate mechanism (ERM II) The exchange rate policy will still remain the controlled floating. Although the exchange rate will play a stronger role in reducing inflation, NBR has reduced its interventions, leaving the foreign currency market to find the equilibrium level for the exchange rate. After the moment of introducing the ERM II, the maintaining of the direct inflation targeting strategy is probable or is possible to pass at an exchange rate targeting strategy.