We must continue slashing reserve requirements to be able to enter the euro area
The 5pp cut in reserve requirements for fx-denominated liabilities with residual maturities of up to two years to 30 percent from 35pp will offload approximately one billion euro in the market, same as in the last round of RRR cut.
The one billion euros available to banks at the end of August could make up the ground for a new club loan that banks would grant to Ministry of Finance to fill the budget gap.
“It depends only on the Ministry of Finance if it would call upon a club loan, but if it did, it wouldn’t be such a bad move, because they would take a long-term loan compared to short-term loans it had been taken so far from commercial banks”, said Lucian Croitoru.
In addition, the RRR-cutting action is part of National Bank’s policy of joining the exchange rate mechanism II, which requires a RRR level similar to euro area states, the adviser to the governor added.
“In order to adopt the single currency, we need to reach a level of the required reserve ratio similar to Euro Area Member States, of around 2% for fx-denominated liabilities. The current crisis rushed up the process, but in the future, we may see further RRR-cutting actions. A 10pp cut is not excluded”, Lucian Croitoru said.
In a first stage, Romania must join the exchange rate mechanism, the currency stability test that the country must adopt for at least two years before joining the euro in 2014.
In the previous rate-setting session on June 30, the Board of NBR agreed to cut the reserve requirements from 18% to 15% for leu-denominated liabilities and from 40% to 35% for fx-denominated liabilities with residual maturity lower than 2 years.
NBR representatives have repeatedly explained that the institution would further cut RRR in order to bring the level closer to the one adopted in the European Union, but the reduction would be operated gradually in order to avoid a massive amount of liquidity offloaded in the market.
The one billion euros available to banks at the end of August could make up the ground for a new club loan that banks would grant to Ministry of Finance to fill the budget gap.
“It depends only on the Ministry of Finance if it would call upon a club loan, but if it did, it wouldn’t be such a bad move, because they would take a long-term loan compared to short-term loans it had been taken so far from commercial banks”, said Lucian Croitoru.
In addition, the RRR-cutting action is part of National Bank’s policy of joining the exchange rate mechanism II, which requires a RRR level similar to euro area states, the adviser to the governor added.
“In order to adopt the single currency, we need to reach a level of the required reserve ratio similar to Euro Area Member States, of around 2% for fx-denominated liabilities. The current crisis rushed up the process, but in the future, we may see further RRR-cutting actions. A 10pp cut is not excluded”, Lucian Croitoru said.
In a first stage, Romania must join the exchange rate mechanism, the currency stability test that the country must adopt for at least two years before joining the euro in 2014.
In the previous rate-setting session on June 30, the Board of NBR agreed to cut the reserve requirements from 18% to 15% for leu-denominated liabilities and from 40% to 35% for fx-denominated liabilities with residual maturity lower than 2 years.
NBR representatives have repeatedly explained that the institution would further cut RRR in order to bring the level closer to the one adopted in the European Union, but the reduction would be operated gradually in order to avoid a massive amount of liquidity offloaded in the market.