Romania’s central bank said it cut the monetary policy interest rate by 25bps to 3.75% in its Jan 8 monetary board meeting. The move comes after the central bank cut the policy rate by 125bps in the second half of last year in an attempt to reflect the disinflation but also to support the financial intermediation.

Corporate bank loans data show that indeed local currency lending has gained certain ground in H2 last year – but overall the stock of loans keeps shrinking. Banks rather re-denominate part of the loans from foreign to local currency but the financial intermediation remains subdued.

Separately, the central bank cut by 2-3pps the minimum reserve requirements for both foreign and national currency liabilities – also on Jan 8. The move is visibly aimed at encouraging banks to expand loans and thus stir growth. Nonetheless, it is possible that part of the money thus released to banks might be transferred to parent financial groups that own the bulk of the Romanian banking system.

In particular, the mandatory reserve requirements were cut to 12% from 15% for leu-denominated liabilities and to 18% from 20% for foreign currency denominated liabilities.The move is estimated to release RON 3.5bn and EUR 400mn from the required reserves of the banks, Ziarul Financiar daily quoting officials of the largest bank BCR as evaluating.

The overall EUR 1.2bn made available to banks compares with a total stock of nearly EUR 50bn of non-government loans. Out of the total loans, bad [loss and doubtful loans] account, however, for some 30%. The high share of bad loans is also the cause for the deadlock on the credit market and for the high loan interest rates.

The central bank also pledged to pursue an adequate liquidity management in the banking system.