Central bank cuts key rate and CRR for foreign currency

While the key rate cut was expected by analysts, the CRR reduction, which will release more liquidity onto the market, came as a surprise.

Experts were foreseeing that the central bank would maintain the CRR at its current level, so that it can analyze the impact of the previous cash reserve ratio reduction, decided on June 30. During the previous Board meeting, the central bank cut the CRR level for lei liabilities to 15 percent, from 18 percent, and those for foreign currency liabilities with residual maturity lower than two years to 35 percent, from 40 percent. CRR for foreign currency liability with maturity higher than two years had already been cut to zero.

Some €1.2 billion are likely to be released onto the market following this decision. However, these funds could end up back with the state, instead of loans to companies and individuals, through loans taken out by the Finance Ministry, according to the Chief Economist of Raiffeisen Bank Romania, Ionuţ Dumitru, for Business Standard.

“The private sector has a low indebtedness capacity. People have uncertainties related to revenues, unemployment is rising, and many already have debts. Numerous companies also lack the capacity to borrow,” Dumitru said.

Following yesterday’s decision, the key rate returns to its January-February 2008 level. Since the beginning of 2009, BNR cut the key rate by 1.75 percentage points, from 10.25 percent in January.