Wednesday, July 1, 2009

Romania deposit rates should ease beyond 9

BUCHAREST, July 1 (Reuters) - Romania's current monetary conditions allow local banks to lower deposit rates to below the central bank's benchmark 9 percent interest rate, governor Mugur Isarescu said on Wednesday, from 12-14 at present.

Like most of its neighbours, Romania fell into recession this year as demand evaporated, lending came to a virtual standstill and foreign investors fled local markets amid global financial turmoil.

'(Deposit) rates should be under 9 percent, but of course I don't offer targets to banks,' Isarescu told an economic seminar. 'That's an area of normality.'

The central bank cut interest rates by 50 basis points on Tuesday and lowered the reserve requirement (RMO) for banks on leu and foreign-exchange denominated liabilities in an effort to revive lending and lift the economy out of recession.

Isarescu said Tuesday's changes in reserve levels was estimated to roughly disburse 1.3 billion euros worth of foreign exchange funds and around 3 billion lei in the market.

'We gave them (the banks) liquidity via the RMO, through repo operations ... I do believe that a moment of crisis has been used in a positive way.'

The bank cut the minimum reserve requirement on leu liabilities with maturities of less than two years by 300 basis points to 15 percent, and to 35 percent from 40 percent on hard currency.

It said lower inflation, a 'significant slowdown' in credit to the private sector and a faster than expected decline in Romania's current account deficit necessitated a rate cut to meet its medium-term price growth goals.

Its other target, it said, was 'a sustainable revival of the lending process.'

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