Historical low: Central Bank cuts key interest rate to 3.75 pc

BNR governor Mugur Isarescu hopes for cheaper loans, commercial bankers are sceptical.

The National Bank of Romania’s (BNR) Board of Directors decided yesterday to cut the key interest rate to 3.75 per cent from 4 per cent per year from Jan. 9, 2014, the Central Bank said in a press release. Furthermore, the BNR directors decided to cut the minimum mandatory reserve rate applicable to the national RON currency liabilities of the crediting institutions to 12 per cent from 15 per cent and to slash the minimum mandatory reserve rate applicable to the forex liabilities to 18 per cent from 20 per cent, to be enforced from Jan. 24-Feb. 23, 2014. The BNR also took a decision to properly manage the banking system liquidity. ‘The BNR Board reiterates that the sensible use of all the instruments the Central Bank has available, while carefully monitoring the domestic developments and the developments of the global economic climate is likely to secure the stability of the prices on the medium-term and financial stability,’ the BNR release explains.
BNR Governor Mugur Isarescu repeated on numerous occasions that this cycle of monetary policy relaxation should be reflected in the banks’ resumption of crediting, but the market does not show signs of improvement. The decision to lower the minimum mandatory reserve rate was anticipated by the market, and an indication in this sense came precisely from Governor Mugur Isarescu. Some analysts also expected the continued lowering of the monetary policy interest rate.
In early December last year Isarescu stated that in order to support crediting the Central Bank is ready to lower the minimum mandatory reserve rates in 2014, which total approximately EUR 6 bln in forex and EUR 3-4 bln in RON, even though the monetary market registers a surplus of liquidity estimated at approximately EUR 2 bln.
Last year BNR lowered the interest rate by 1.25 percentage points, down to 4 per cent per year. The Central Bank cut the interest rate in several stages, down from 5.25 per cent per year, a level set in March 2012.

“If we hadn’t reduced the RMOs, there would have been no extraordinary risks because in Romania the lending activity depends on factors unrelated to monetary conditions – the situation in Europe. Domestically, it also depends on the large debts of companies and the population,” Mugur Isarescu, governor of BNR, stated yesterday at a press briefing, HotNews.ro informs. The delay in reducing RMOs creates further distance between Romania and Europe, and maintains a high debt level on the short term that also impacts our rating. Moreover, it discourages lending activities, the governor added. “Measures such as increasing the excise tax or introducing the poll tax have already been included in our prognosis. We are not in danger of missing the inflation corridor; not in the first half of the year, at least.”  “Today’s decision would normally lead to depreciation of the national currency. However, I am not worried something like this could happen. When I say I’m not worried, I mean it. I couldn’t say banks have been listening to us so far. We kept telling them it was in their best interest to lower the price of loans,” Isarescu emphasized. The reduction of euro-denominated mandatory minimum reserves (RMOs) from 20 to 18 per cent clears approximately EUR 500 M on the market. The reduction of leu-denominated liabilities from 15 to 12 per cent, in turn, clears RON 4 billion, Isarescu continued.   The annual inflation rate has dropped to 1.83 per cent in November 2013, while the base inflation rate – CORE 2 ADJUSTED – reported negative values for the second month in a row.
Raiffeisen: BNR’s decisions help, but won’t solve the issue of resuming lending activities
Decisions made Wednesday by the National Bank of Romania’s Board of Directors regarding lowering the monetary policy interest rate, as well as RMOs, help, but do not really solve the issue of resuming lending activities, a much more complex issue, Ionut Dumitriu, chief economist at Raiffeisen Bank and Chairman of the Fiscal Council, stated for Agerpres.
Radu Craciun, financial analyst and Deputy General Manager of Eureko Pensii, said BNR’s decisions are correct, but they were issued too late and will only influence bank lending activities after ten or twelve months.

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