In line with analysts’ expectations, the Board of Directors (CA) or the National Bank of Romania (BNR) yesterday cut the key-interest rate by 0.25 percentage points from 5.5 per cent to 5.25 per cent per annum, which is a new all-time record low, reads a release from the central bank. Since the beginning of this year, the central bank has reduced the key-interest by a total of 0.75 per cent, by successive 0.25 point cuts. ‘The BNR Board reaffirms that the central bank will continue to monitor domestic and international economic developments in order to adequately adjust the tools it has to provide price stability on a medium term and financial stability’, the document also states. BNR has also decided to keep the minimum requirement for lenders at 15 per cent for liabilities in RON and 20 per cent for other currencies. National Bank Governor Mugur Isarescu held a press briefing yesterday for the first time after a decision to reduce the key-interest rate, by that following the practice of the European Central Bank and of the Federal Reserve of the US, who organise press briefings shortly after decisions made during their monetary policy meetings. During the meeting, Mugur Isarescu noted that in the second half of the year we may see a rise in inflation, without exceeding the 3 per cent target established in the agreement with the International Monetary Fund (IMF). ‘The evaluation of inflation prospects reconfirms a deceleration in the upcoming period of both total and basic inflation,’ reads a detailed BNR release. On the other hand, ‘we expect February data will confirm the decrease of interest rates for loans following the key-interest cut,’ Mugur Isarescu also stated. ‘BNR reiterates that, reaching price and financial stability objectives while fulfilling commitments within the agreements with the EU, IMF and other international financial institutions is crucial for obtaining sustainable economic growth. For that, stepping up absorption of European funds and the gradual restoration of local demand will lead to a recovery of the Romanian economy on sustainable bases,’ the governor pointed out in his speech. He added that the risks coming with the electoral process call for a judicious calibration of monetary policies to secure medium-term price stability. The BNR governor also noted that, currently, in the Romanian banking sector, some of the banks have a shortage of cash while other ones have excess liquidity. ‘This deficit reflects tensions in the EU and issues parent banks have. They demand from their subsidiaries a better loan/deposit ratio. An improvement will take time and will have effects.’ Mugur Isarescu also stressed that BNR was not answering fears about the euro/leu exchange rate and was not defending it in any way. ‘The leu is in an area of equilibrium,’ the central bank chief concluded. Asked to indicate BNR’s position on the announcement the Ungureanu Government had made on raising salaries in the public sector, the governor of the central bank said that it was not the Bank’s responsibility: ‘From the positions of the government we understand that the restoration of salaries in the public sector will be done within the objectives and budget targets established in the agreements with the IMF. The temporary character of the measure has been recognised ever since the Constitutional Court ruling on the pay cut, in 2010.’ Isarescu added the restoration of salaries might lead to increase of domestic demand and would have a limited impact if the budgetary target agreed with the IMF will be observed, as the authorities have announced. Finance and banking analysts had anticipated by a wide majority the central bank’s decision following the drop of inflation and a persistent aggregated demand deficit. Almost 80 per cent of the analysts were expecting BNR not to chance minimum requirement rates. The members of the Association of Finance and Banking Analysts of Romania (AAFBR) who answered a regular questionnaire expect the key-interest to be 5 per cent (answers range from 5 to 5.25 per cent) at the end of 2012 and possibly 5 per cent (estimations vary from 4 to 5.75 per cent) at the end of 2013.
RON close to new all-time record low
Following the cut of the key-interest rate, the BNR calculated exchange rate went up by 0.51 cents to RON 4.3788 /EUR and got close to the all-time record low recorded last week. Thursday rate is just 0.06 cents under the record low of March 19 – RON 4.3794 /EUR and above the Wednesday rate of RON 4.3737 /EUR. The leu also depreciated on Thursday against the American dollar, losing 2.35 cents, from RON 3.275 /USD to RON 3.2985/USD. The national currency also lost terrain to the Swiss franc, the official exchange rate making an advance of 0.65 cents to RON 3.6333/CHF. The central bank had calculated for Wednesday an exchange rate of RON 3.6268 /CHF.
Central bank profit continues to drop
According to non-audited data, BNR obtained last year a gross profit of RON 301.4 M (EUR 70 M), almost five times less than in 2010 – RON 1.41 bn, Mediafax informs. The central bank wired to the state budget RON 241.1 M (EUR 56 M) representing 80 per cent of the earnings, under the law, so the net profit withheld by the bank was RON 60.3 M (about EUR 14 M). Although on the local market BNR was a net creditor in 2011, its profit was most likely affected by the declining yields for sovereign bonds issued by AAA-rated states and entities, the main placement instrument for the international reserves. BNR’s forex reserves in December grew by almost EUR 1.5 bn, in the context of currency entries from the World Bank and European Commission and closed the year at EUR 33.2 bn, slightly up from the EUR 32.4 bn recorded in December 2010.