The solutions given by The National Bank of Romania to the international financial crisis and their effect Author: Horia Mircea Botoş


The NBR activity on the monetary policy



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The NBR activity on the monetary policy

Monetary policy interest rate was reduced to 10% on February 5th 2009, lending standards have also been relaxed a little, so we can expect a loaning revival, but at lower rates than those of previous years. On May 7th, the interest of monetary policy was reduced again at 9.5 percent, the interest rate on lending facility was also lowered to 13.5 percent for its 14 percent level of February 5th, and the interest rate on the deposit facility was also diminished to 5.5 from its 6.0 previous score.


Meanwhile, the central bank decided to maintain minimum reserves at the same level, contrary to expectations of market analysts. They expect national bank to postpone the reduction rate of monetary policy and decrease the level of minimum reserves (RMO) for liabilities in RON.

Over 70% of the members of the Association of Financial-Banking Analysts of Romania (AAFBR) had foreseen a decrease of 1-3% for the Ron minimum reserves, up to the level of 16%. Also, experts predict an RMO for maintaining liabilities in foreign currency unchanged at 40% until Romania had signed a financing agreement with the International Monetary Fund.


Reducing the minimum reserve of banks resulted in a faster growth of liquidity and thus lowering interest rates in a short period. These phenomena should be translated by a revival of the credit in RON, less risky than those in foreign currency.


In the context of high volatility of the exchange rate, encouraging lending in foreign currency would increase the number of those who couldn’t pay their instalments. All because the RON is on a downward trend to the euro, the Management Board of National Central Bank decided to maintain monetary policy interest rate at 10.25%. And lowering it then the exchange rate stabilised.


‘Reducing the rate of monetary policy will likely be postponed, first because of the significant pressure of the depreciation rate and on the other hand, due to reduced effectiveness in conditions in which interest on the money market is well above the level the reference interest and evolve according to their perception of risk‘said Rozalia Pal, chief economist of UniCredit Tiriac Bank, quoted by Ziarul Financiar, on February 4th 2009.


Keeping monetary policy interest rate at the current rate will displease the bankers, however, given that NBR has not changed it since August 2008. The few analysts who hoped that the Central Bank would alter interest rate monetary policy base their presumptions on a 0.25-0.50 fall of the rates value.

The central bank reduced last time the interest in the monetary policy meeting of the Administration in June 2007 when it had dropped from 7.25% to 7%. Since then, there were seven increases; the biggest step was 1%, the value reaching 10.25% in the year 2008. Then finally lowering it at a 9.5 level in May 2009, after two successive decreases occurred.
Reference rate in the country is now at 9.71 points per year, recording a decline after reducing of the interests in monetary policy. It recorded a constant 10.25% from September 2008 until February 2009, and since that time showing a descending trend reaching the current levels.
Gold Reserve has been maintained at 103.7 tonnes. In terms of international prices, it had a value of 2484 million euro. Romania's international reserves (currency plus gold) on 28 February 2009 were 28,401 million euro, compared with 28,388 million at 31 January 2009. Payments due in March 2009 in the external public debt, direct or guaranteed by the Ministry of Public Finance, amounted to 112 million euro.




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