Lower FX Reserve Requirements Give Banks More Flexibility - Central Banker

04.07.2011 By Florentina Dragu

Romanian central bank’s decision to lower minimum reserve requirements for hard currency liabilities aims to increase liquidity in the market and give more flexibility to local banks, central bank governor Mugur Isarescu said.

Romanian central bank's decision to lower minimum reserve requirements for hard currency liabilities aims to increase liquidity in the market and give more flexibility to local banks, central bank governor Mugur Isarescu said.

At its latest monetary policy meeting March 31, the central bank left its main interest rate at a record low of 6.25% a year for a seventh straight time, while lowering the minimum reserve requirements for foreign currency liabilities to 20% from 25%.

The move was highly unexpected in the market and analysts said the central bank wanted to send out a positive signal regarding the economy.

"I don't think this should have come as such a big surprise. As I've mentioned before, the central bank is in the process of aligning itself to European standards, so the gradual reduction of the forex minimum reserve requirements will continue," Isarescu told MEDIAFAX.

Isarescu said the lower reserve requirements have helped free EUR1.3 billion for the Finance Ministry, which must pay external debt worth EUR2.7 billion in the coming period.

Additionally, the commercial lenders need more flexibility, he added.

"The banks have done their duty and kept their exposure to Romania. Things are complicated at a global level and more flexibility allows them to adapt to moments we can't foresee (…). They need flexibility to roll over their cash, to make profit," Isarescu said.