NBR frees up €1-1.2 billion for lenders

The policymaking board of the central bank met yesterday in a “special session” to assess the impacts of the aid deal delay on the local budget, monetary and fiscal environment.

The conclusion of the yesterday’s session was that “in the context of a postponement in the disbursement of the third tranche under the stand-by arrangement with international institutions, addressing the financing needs of the governmental sector in the final quarter of the year, as well as maintaining macroeconomic balances, requires us to secure adequate financing conditions in the domestic banking industry”, the central bank said in a release.

The central bank has cut the reserve requirements for foreign currency denominated liabilities for banks with residual maturity of up to 2 years, from 30% to 25%, effective November 24 – December 23. The bank regulator has thus freed up more cash in the market, money that will most likely be used to bridge the budget gap. Sources at the central bank told Wall-Street, that the move would release €1-1.2 billion.

“NBR’s decision is not common, but is not surprising since the external financing initially scheduled for December has been put off. The measure was needed, and the central bank’s decision will only fill the financing gap”, Adrian Vasilescu (photo) adviser to the NBR governor told Wall-Street.

Analysts: The cash freed up will go to a new club loan

The €1-1.2 billion freed up by the reduction in the required reserve ratio for FX-denominated liabilities from 30% to 25% will partially fill the budget gap, through new issues of fx-denominated state securities by Ministry of Finance or most likely through a new club loan.

“The cash will be used either for issuing fx-denominated state securities by the Ministry of Finance in the local market, or for a new club loan. However, the amount of money released by the central bank may not be enough to fill the budget gap this year”, said Nicolae Alexandru Chidesciuc, senior economist of ING Bank Romania.

Given the recent estimates of the national bank, that suggested a total financing gap of €5 billion, and total cash released after RRR cut of €1-1.2 billion, he continued, it is obvious the need still persists. “The state will probably choose to defer payments”, ING’s economist concluded.