The National Bank was quick to move from "frowning upon" the lending in RON this spring to concrete steps to take the wind out the sails of domestic currency lending. Its Board of Governors yesterday decided to raise the monetary policy rate from 8.5% to 8.75%, as well as to increase the minimum mandatory reserves in RON by four percentage points to 20%.
The move was largely caused by the prospect of an increase in the budget deficit to 2.5% of GDP.
"NBR is faced with an additional complication and this is why we are using such a strong measure like raising minimum mandatory reserves in RON because we are trying to offset the possible effects of the rise in government spending," Governor Mugur Isarescu stated yesterday at the end of the monetary policy meeting of NBR's Board of Governors. He said the NBR was practically faced with one more problem at the moment, because every demand component was on the rise and the current account deficit was already relatively high, while inflation still needed curbing.
Whereas the rate increase is merely symbolic, and incapable of generating significant effects on the market's appetite for loans, it is the increase in the minimum mandatory reserves the banks have to leave with the NBR, out of the total resources attracted in RON for maturities of less than two years, which could lead to a freezing of interests in domestic currency lending to current levels.
"In order to temper the persistently high and accelerating expansion of non-governmental lending, especially of that in domestic currency, the Board of Governors decided to up the minimum mandatory reserve rate for liabilities in RON maturing in less than two years from 16 to 20%, as of the July 24-August 23 application period," NBR's Board of Governors' release reads.
Besides the increase in interest and RON reserve rate, the central bank announce
