Governor Isarescu recommends new precautionary loan with international lenders for Romania

Central bank governor Mugur Isarescu said on Monday that the closing of a new precautionary loan agreement with the IMF and EU would ensure access to cheaper financing options on the international markets.

The governor said that a fresh deal would serve as an “anchor” for the country, providing credibility that would allow cheaper loans or access to finance even when the international markets are distressed.

“I would recommend the closing of a new deal because it proved to be beneficial, even though we didn’t draw a single euro, a single dollar from these two agreements, because we could address international financial markets, capital markets,” said Governor Isarescu, quoted by Agerpres newswire.

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The governor added that such precautionary loans are needed to protect the country as it continues to implement major reforms.

Romania took out a EUR 12.95 billion stand-by loan from the IMF in 2009, as part of a EUR 19.95 billion deal with the IMF, EU and World Bank, in a move designed to prevent a sovereign default in the wake of the global recession. Under this loan, Romania used EUR 12 billion from the IMF.

A second stand-by agreement loan worth EUR 3.5 billion with the IMF was completed this month.

NBR cuts key interest rate to 5 percent

The administration board of the National Bank of Romania (NBR) decided on Monday to cut the key interest rate by 0.25 percentage points to 5 percent. The Lombard (NBR’s lending facility) interest rate was slashed by 0.25 percent to 8 percent, while its deposit facility rate dropped to 2 percent, from a previous 2.25 percent.

The NBR said the cuts were aimed at anchoring inflation expectations and increasing confidence in the local economy, amid the implementation of reform programs backed by international financial institutions.

In the banking system, the NBR decided to maintain the current levels of the minimum reserve requirement ratios on both leu and foreign currency denominated liabilities of credit institutions.

“The decisions convey a positive signal to the banking system, the business community and households, by prompting a gradually downward trend in domestic currency lending costs and fostering economic activity. Such a monetary policy configuration is further aimed at achieving the objective of ensuring medium-term price stability while preserving financial stability and cushioning the adverse impact of domestic and external factors on the recovery of the Romanian economy,” said the NBR in a statement.

The next NBR board member dedicated to monetary policy matters is scheduled for August 5, when the new quarterly inflation report will be discussed.

Ovidiu Posirca