BNR cuts key rate to 5 pct per annum

The National Bank of Romania’s Board of Directors decided to cut the money policy interest rate – or key rate – to 5 percent per annum down from 5.25 percent starting today, the bank informed yesterday in a press release. The Central Bank also announced that the interest rate to Lombard lending will drop to 8 per cent per annum starting the same date down from 8.25 per cent and the interest rate to depositing will be 2 per cent per annum down from 2.25 per cent.
The National Bank Board of Directors also decided to adequately manage the banking system liquidity and maintain the current levels of the minimum mandatory reserve rates applicable to the leu- and forex liabilities of the crediting institutions. BNR had last operated a key rate cut in March 2012, from 5.5 to 5.25 per cent per annum. The next BNR Board sitting dealing with monetary policies is on August 5, when the new quarterly inflation report is to be analysed.
In this context, specialists expect the key interest to be reduced to as low as 4.75 per cent by December 2013 and 4.5 per cent by December next year. The required reserve ratio for liabilities in the local currency could be kept at the current 15 per cent this year and then reduced to 11 per cent by the end of 2014 and for forex liabilities at 20 per cent in 2013 and lowered to 16 per cent by the end of 2014.  BNR Governor Mugur Isarescu expects interest for selected bank loans will be noticed beginning with this summer as a result of the cutting of the key rate by the central bank from 5.5 to 5 per cent on Monday, he said at a press briefing following the Board meeting. He also pointed out that BNR could not force banks to reduce their lending interests as banks have their own autonomy, management and necessary return calculations.

The reduction of the key interest rate by BNR marks the beginning of a monetary policy relaxation cycle, Raiffeisen Bank Romania chief economist Ionut Dumitru told Agerpres. He also noted he expected a combined cut by one percentage point of the key rate, down to 4.25 per cent in March 2014.
The GDP yearly trend improved in Q1 this year (from 1.1 per cent in 2012 Q4 to 2.2 per cent) thanks to net export the recovery of which triggered a notable advance of the processing industry production. The positive evolution of the trade balance reflected on the current account the balance of which remained positive in the first four months of the year. The annual trend of the forex credit granted to the private sector dropped by 4.1 per cent and the local currency credit experienced a period of stagnation. The exchange rate recorded ampler fluctuations because of the enhanced volatility of investors’ risk appetite and persistent uncertainties regarding the evolution of the economy in Europe and in the world.
The current short-term projection reconfirms the resumption of disinflation beginning with July 2013. The annual inflation rate is expected to go down at a much faster pace and returned, in September-October within the variation interval of +/- 1 percentage point around the 2.5 per cent target. The adjusted CORE 2 inflation will continue its descending trend amidst a persistent aggregated demand deficit.
BNR records profit for six years in a row
The management of forex assets and liabilities and, especially last year, the crediting of commercial banks, allowed BNR to keep making profit during six years in a row. Since the beginning of the crisis, in 2009-2012, the central bank gathered net profits of little over RON 7 bn, unlike commercial banks that have reported net losses of RON 3.6 bn and in contrast with the general trend of the economy that suffered a drastic fall and doesn’t seem to be recovering any time soon either.
For example, last year BNR obtained net profit of RON 696 M, 130 per cent more than in 2011, the main earning sources being the management of forex assets and liabilities and the credit given to commercial lenders as weekly liquidity injections by repo operations. ‘It is not a paradox that, in crisis, BNR made a profit last year and was reporting loss during periods of exceptional economic growth. It is a natural fact’, Adrian Vasilescu noted. The profit is explained by a sound management of forex reserves, of the gold reserve as well as financial operations, Mugur Isarescu’s adviser explained. However, the main reason Vasilescu highlighted is the policy of the National Bank of Romania relative to the banks in the system. From 1997 to 2008, BNR had a net debtor’s position and sought to raise liquidity on the market, borrowing from banks and paying interest. In the following period, BNR became a net creditor, lending lei to the banks in the system. ‘Under its Statute, BNR must provide banks with liquidity. When it does that, BNR lends lei, cashes interest and makes profit’, Adrian Vasilescu further said.
Bank’s forex reserves down by EUR 384 M in June
BNR’s forex reserves dropped by EUR 384 M in June from EUR 32.69 bn to 32.3 bn amidst total exists of EUR 1.04 bn including the eighth repayment of the loan taken from the IMF, Mediafax notes. A total of EUR 662 M entered in June, representing the change in the lenders’ forex reserve requirement, the feeding of the account of the European Commission, of the account of the Ministry of Public Finance and so on.
On the other hand, EUR 1.046 M exited, including the difference in the lenders’ cash reserve ratio, the payment of instalments and interest on the account of the public debt denominated in foreign currencies, including the eighth repayment of capital for the loan from the IMF, for which BNR and the Ministry of Public Finance each repaid approximately EUR 123 M – the equivalent of euro, and so on, according to a central bank release.
Gold reserve stays at 103.7 tons with a value of EUR 3.07 bn. Romania’s international reserves (currencies plus gold) at the end of June were EUR 35.38 bn compared to EUR 36.31 bn at the end of the previous month. Payments falling due in July 2013 on the public debt account denominated in foreign currency – direct or guaranteed by the Ministry of Public Finance – amount to approximately EIR 160 M.

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