Central Bank Takes Prudent Steps To Stimulate Lending Recovery

• Key rate lowered to 8.0% p.a. from 8.5% p.a.

The National Bank of Romania (BNR) has reduced the monetary policy rate to 8 per cent p.a. from 8.5 per cent p.a. as of 30 September 2009, following a decision adopted by the BNR Board yesterday.

The National Bank of Romania is currently focusing on the convergence between the inflation rate and the medium-term objectives, as well as the assurance of the prerequisites for sustainable lending revival, according to a press release to BURSA. The Central Bank will maintain a prudent stance and continuously calibrate current parameters to key policy objectives.

Financial analysts had anticipated BNR"s move and expressed confidence that the effects of yesterday"s decision would become visible on medium-term.

Nicolaie Alexandru-Chidesciuc, Senior Economist of ING Bank - Romania, believes that the reduction of the monetary policy rate is intended to trigger a subsequent decrease in interest rates firstly on the interbank market. "The next step will be to have lower interest rates both consumer and business loans and deposits," he told BURSA. In his view, lending recovery will be the first phase of economic recovery.

Lucian Anghel, Chief Economist of Banca Comerciala Romana (the Romanian Commercial Bank - BCR), believes that a lower inflation rate makes room for further reduction of the interest rates, but only under certain conditions. "One such condition may be to observe our agreements with the international financial institutions," Anghel told BURSA. In his opinion, there is a good chance that the National Bank may further reduce the monetary policy rate.

The BNR Board also decided to ensure adequate management of liquidity in the banking sector with a view to consolidating monetary policy transmission channels and to maintain the existing minimum reserve requirement ratios on both RON-denominated and foreign currency-denominated liabilities of credit institutions.

The BNR Board reiterates that firm and consistent implementation of the macroeconomic policy mix - monetary, fiscal and income- as well as of the structural reform measures agreed under the multilateral external financing arrangement with the European Union, the International Monetary Fund and other international financial institutions is essential for achieving further sustainable disinflation, maintaining financial stability and delivering lasting and sustainable economic recovery, the press release indicates.

The new key rate becomes affective as of 30 September and is the lowest recorded since February 2008. The rate on the deposit facility will be lowered to 4.0 per cent per annum from 4.5 per cent whereas the rate on the lending facility (Lombard) will be 12.0 per cent per annum from 12.5 percent. Concurrently, the penalty rate for deficits of RON-denominated minimum reserves will drop to 18.0 per cent from 18.75 per cent, the BNR also announced.