BNR is ready to lower the cash reserve ratio next year

Romania’s central bank, BNR, is considering a diminution of the required reserve ratio in 2014 both for lei-denominated liabilities and for foreign currency liabilities, but according to Mugur Isarescu, Governor of BNR, there is nearly 2 billion of excess liquidity on the money market.

‘In respect to the money market in Romania, BNR does what a central bank usually does not: injects liquidity into the market. The average liquidity is of 2 billion euro, which is excess liquidity, but the whole economy is like a carpet suffering a drought, with a crust keeping liquidity above, that does not want to enter the economy.’ , Isarescu said during a seminar, quoted by Mediafax.

He also explained that BNR decided to introduce the reserve requirement on foreign currency liabilities between 2006 and 2008 seeking to discourage foreign currency loans, in a time they recorded a boom. However, since the beginning economic crisis, the Central Bank has altered the reserve requirements for Eurocurrency, lowering the required reserve ratio from 40% to 20%.

Isarescu went on stating that BNR is ready to lower it next year, as well as the cash reserve ratio for lei-denominated currency, which is now of 15%, yet there is an issue because of the excess liquidity worth of 8 billion lei (about 1.8 billion euro) on the money market.

The reserve requirement employed by BNR is a regulation which sets the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves.