June 18 (SeeNews) - Romania's central bank (BNR) said on Thursday that its immediate goal is to provide liquidity needed to finance budget expenditures and the real economy, while gradually lowering interest rates without discouraging domestic savings.
"For the period ahead, our actions remain within the limits of this monetary policy stance. The main risks we anticipate for Romania’s economy and finance are clearly related to public health developments," BNR governor Mugur Isarescu said.
"Therefore, we will continue to monitor and update our assessments and steer measures towards providing the necessary liquidity, while safeguarding financial stability and maintaining a sustainable trend of gradual decline in interest rates. The measures will be carefully calibrated so as not to deter domestic saving, which is the main financing source of the real economy and the budgetary sector," Isarescu explained.
Providing the necessary liquidity for the financing of the real economy and government expenditures has remained the topmost priority for the bank, the central bank governor said.
Thus, given a liquidity shortfall on the money market, BNR has conducted new bilateral repo operations, with the daily average stock of these operations standing at around lei 7 billion lei ($1.63 billion/ 1.45 billion euro) during May 15 - June 15.
Moreover, the central bank continued to purchase leu-denominated government securities on the secondary market, the total volume of which exceeded 3.8 billion lei on June 5. The period from May 15 to June 15 saw eight government security issues by the finance ministry totalling around lei 8.3 billion, all of which were markedly oversubscribed.
Money market rates saw their decline consolidate, the effect being cheaper credit for households and companies/firms. The 3-month Romania's three-month money market rate (ROBOR) rate dropped from 2.44% on May 18 to 2.15% on June 16, while reference rates on the secondary market for government securities remained on the downward path that had steepened at the beginning of April, Isarescu said.
Isarescu also pointed out that the still higher interest rates in Romania, as compared to those applicable in Czechia, Poland and Hungary, are the consequence and not the cause of Romania’s economic and financial situation: twin deficits, the widest fiscal deficit in the EU at the beginning of the COVID-19 pandemic-generated economic crisis and the high financing requirement for fiscal deficit coverage and public debt refinancing.
Such prevailing realities put continued upward pressure on interest rates on Romania’s borrowings, and the ratings of credit agencies; the public assessments of the European Commission and the European Central Bank also contribute to this distinction and cannot be disregarded, Isarescu added.
On May 29, BNR cut its monetary policy rate to 1.75% from 2.00% as part of a package of measures aimed at mitigating the impact of the coronavirus crisis on households and companies. This was the second rate cut in as many months, after BNR slashed its key rate to 2.0% from 2.5%, effective March 23.
(1 euro=4.8392 lei)