Loading ...The National Bank of Romania (BNR) has a new set of monetary policy instruments in the pipeline, tailored to its new status of net creditor to the banking system, and plans to redefine the key interest rate.
For the first time since the late ‘90s, in October this year BNR got in the position of net creditor to the banks in the system, injecting important amounts of cash into the market in a month when players were wary of performing operations among them, on the backdrop of strong mistrust.
For the first time since the late ‘90s, in October this year BNR got in the position of net creditor to the banks in the system, injecting important amounts of cash into the market in a month when players were wary of performing operations among them, on the backdrop of strong mistrust.
So far the central bank has used a set of instruments to inject liquidity in the market when needed – beginning with the permanent credit facility (Lombard) and ending with repo or even swap type operations (performed under the particular conditions of October).
At the same time, the BNR Board decided in October to reduce the minimum mandatory reserves in lei, in a measure that kept some 2 bln lei (540.4 million euros) at the banks’ disposal.
At the same time, the BNR Board decided in October to reduce the minimum mandatory reserves in lei, in a measure that kept some 2 bln lei (540.4 million euros) at the banks’ disposal.
Yet formally, the one-week deposit remains the core instrument of the BNR monetary policy, but this was adequate for the time when the central bank was draining the liquidity surplus from the market.
Dorina Antohi, deputy director of the BNR Monetary Policy and Macro-economic Modeling Department cited by daily Ziarul financiar, says that “although waters have not yet calmed down” for the banking authority to reach a decision, BNR will definitely change the definition of the monetary policy interest rate.
Dorina Antohi, deputy director of the BNR Monetary Policy and Macro-economic Modeling Department cited by daily Ziarul financiar, says that “although waters have not yet calmed down” for the banking authority to reach a decision, BNR will definitely change the definition of the monetary policy interest rate.
Instruments (for liquidity injection – Ed. Note) are not yet standardized. In the coming period, money injection will take over the leading role in liquidity management and will weigh heaviest on monetary market interest rates. The monetary policy interest rate will be that attached to the main instrument used for liquidity injection.
The change in BNR’s position to the system is visible also in the wording of its releases after Board meetings where expressions like “strict control” or “firm management” of liquidity were replaced by “ensuring the proper functioning of the inter-bank market” and “ensuring sustainable financing to economy.”
The change in BNR’s position to the system is visible also in the wording of its releases after Board meetings where expressions like “strict control” or “firm management” of liquidity were replaced by “ensuring the proper functioning of the inter-bank market” and “ensuring sustainable financing to economy.”
From the position of net creditor, BNR can easier influence market interest rates. Practically, the interest rate used by BNR for refinancing operations translates into cost for banks that will further pass them on to the market.
BNR’s switching to the position of creditor occurred at a time when the structural excess of liquidity was reabsorbed concomitantly with the strong development of lending to the private sector.
BNR’s switching to the position of creditor occurred at a time when the structural excess of liquidity was reabsorbed concomitantly with the strong development of lending to the private sector.
BNR’s interventions on the currency market this year, consisting of sales of foreign currency for lei also helped drain liquidity. Whereas in fall 2007 BNR had more than 9 bln lei in its vaults (over 2.5 bln euros) in cash drawn from the market in sterilization operations, in October this year the daily average has been just 18 million lei (4.8 million euros).
Moreover, in October banks massively sought the Lombard credit facility offered by BNR, attracting a combined of almost 49 bln lei (some 13 bln euro) all over the month. The Lombard credit is extended overnight so that the accumulated total actually represents the roll-over of a daily need for financing. Practically, the banks attracted in each trading session of October an average of 2.1 bln lei (567 million euros), for an interest rate of 14.25% per annum. The interest paid for these amounts stands at a daily 831,000 lei (more than 200,000 euros).
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