Speaking in an interview for Mediafax, the central bank’s chief said the Romanian economy is strong enough to deal with a controlled deleveraging process from foreign banks, but keeping investors’ confidence is vital, particularly during an election year.
“Considering the current fiscal consolidation level, with deficits of 2% to 3% of the gross domestic product, the country is able to withstand a certain amount of deleveraging,” Isarescu said.
“However, the deleveraging process must be moderate and controlled, with no massive flows.”
The central bank official estimates domestic lending will accelerate its recovery over the following period, particularly fueled by leu-denominated loans.
In fact, the recent downward trend in foreign-denominated lending was one of the main factors which prompted the central bank to lower its minimum reserve requirements for forex liabilities, Isarescu said.
“The situation has changed compared with 2006-2008, when foreign currency lending was growing at a very fast pace. During that period, the central bank has increased its reserve requirements to discourage forex lending.”
The central bank last week cut its key lending rate by 25 basis points to an all-time low of 3.75%, while lowering the minimum reserve requirements to 12% for leu-denominated liabilities and to 18% for foreign currency liabilities, from 15% and 20%, previously.
The monetary policy decisions reflect the country’s low annual inflation rate, as well as a slowdown in foreign currency lending, Isarescu said.
He said the central bank has scope to further reduce its reserve requirements, but that the still high ratio of foreign currency loans remains a constraining factor.
“We have to see how the market reacts as well before trying to harmonize the level of the minimum reserve requirements to EU ratios. However, the local levels cannot be brought down to 2%, because there are still many loans in foreign currency and the tendency to take loans in foreign currency remains,” Isarescu said.