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| CENTRAL BANK LOOSENS LENDING LOCKS 01/04/2009 |
| (2009-04-01) |
| Last updated: 2009-04-02 17:17 EET |
After Romanian authorities reached an agreement with the International Monetary Fund and the European Commission, under which it will receive close to 14 billion Euros, the National Bank of Romania Tuesday decided to keep the monetary policy interest rate at 10 per cent, but changed the compulsory minimum reserves of commercial banks.
The central bank eliminated the compulsory reserves for foreign currency loans with maturity over two years. The measure will take effect as of May the 24th. A surprising, yet welcome decision, experts say, who expect positive medium-term effects on loans and, possibly, a decrease in interest rates, as the economy regains its confidence.
At present, banks as well as prospective clients are quite cautious when it comes to lending or borrowing money. Basically, experts believe, the new measure might release 2 to 4 billion Euros into the market, and commercial banks may use this money to grant long-term loans, such as mortgage or investment loans.
On the other hand, the National Bank decided to keep the current level of compulsory minimum reserves for other liabilities, at 18 per cent for national currency loans and 40 per cent for foreign currency loans. Analysts explain that the decision to lower foreign currency lending terms was taken because there is enough national currency cash in the market, and that might pressure the exchange rate.
The appreciation of the national currency would benefit the economy, in that it would encourage exports and discourage imports. There are also analysts who say the central bank's policy of supporting the current exchange rate is unsustainable and that national currency lending should be given a boost. The central bank announced that in the forthcoming period it would closely monitor domestic and international developments and would take all necessary measures to maintain financial stability and price stability in the medium run.
Experts also said that the National Bank made this decision after consultations with the IMF and after representatives of the Fund had a meeting in Vienna last week with the management of the nine parent-banks that control the leading banks in Romania. Foreign banks undertook not to pull out capital from their subsidiaries in Romania; on the contrary, they pledged to increase funding for their offices in this country.
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