BNR’s decision to cut the key rate not much help to bankers

“The effect of this decision is next to zero. I see no effect on the leu because, if there is not more money on the market, this is in vain. Banks hold interest on deposits high, considering they no longer have the same resources from abroad. They could stop raising interest on deposits,” the Chairman of the Supervisory Board of UniCredit Tiriac Bank, Dan Pascariu, told Business Standard. Some bankers say that lenders could maintain the current level of interest for both loans and deposits. The central bank’s decision had little impact on the exchange rate, which is now at RON 4.3/€1, close to BNR’s RON 4.2954/€1 benchmark. Bankers were expecting a decision by BNR’s Governor, Mugur Isarescu, regarding a lower Cash Reserve Ratio (CRR), especially for lei-denominated deposits, to raise market liquidity, which is indispensible to lending. Romania’s central bank decided to maintain the current CRR level at 40 percent for foreign currency deposits and 18 percent for lei deposits, and to lower the key rate to 10 percent. Moreover, BNR plans to be more active on monetary market operations. “Commercial banks do not know which way to go. It is unclear to them whether they should opt for profit or preservation. The answer will come in a few months,” said a bank official. BNR had adopted a significantly restrictive monetary policy as of October 2007, by increasing the key interest sevenfold, to 10.25 percent from 7 percent. (G.F.)