The National Bank in April absorbed the ROL equivalent of no less than 300 million euros from the banking market. The total deposits that the NBR attracted from banks thus increased to 1.9bn euros (ROL equivalent), the highest level ever. As a comparison, all the bills in circulation outside the banking system, namely those we use to pay for our day to day purchases are worth a mere 1.6bn euros. NBR is draining this money from the monetary market, which should instead be directed to credits to keep inflation at as low a level as possible.
Ever since the beginning of the year, the inflation rate has kept going down. From a monthly 1.1% rate in January (13.9% annual rate) to 0.6% in April (12.5% annual rate), inflation will probably reach 0.4% in May. Has the economy restructured in the meantime somehow, without people noticing? Are arrears down by any chance? By no means.
The market is brimming with liquidity, as can most clearly be seen by the surge in the amounts attracted by the central bank from the commercial banks. The average amount of deposits attracted by the National Bank in April reached a record high of 75,797bn ROL (1.9bn euros). This means the amounts 'purged' by the National Bank were 20% higher compared with the previous month, that is 12,000bn ROL (400 million euros) more.
NBR vice-governor Mihai Bogza says that even at the moment, the amounts attracted from the market are in excess of 80,000bn ROL (2bn euros). This is huge for the Romanian banking market, which totals the equivalent of 15bn euros in assets and 8.3bn euros in loans granted by banks. People's savings are worth a mere 5.7bn euros, while loans they have taken out (in both ROL and foreign currency) amount to some 2bn euros.
Another good comparison can be made with the liquidity outside the banking system, namely the money people and companies use every day, which reaches 63,000bn ROL (1.6bn euros). The National Bank of Romania is practically now keeping more money that the entire banking system.
"We are still engaged in our battle with inflation. This growth is only natural given that we kept buying foreign exchange. At the same time, the increase in the volume of money being taken out of the banking system is due to the lower appetite for loans, which left banks with more cash on their hands," Bogza stated.
The NBR is committed to maintaining the downwards inflationary trend, even if it means taking certain chances - even if the purging effort is double. On the one hand it needs to drain the excess liquidity on the monetary market from the banks' clients. And on the other hand, it needs to drain the liquidity surplus created by the central bank when buying foreign exchange to temper the ROL's upward trend, caused by foreign exchange liquidity surplus.
And this is how inflation in Romania is going down. It works for now. The NBR is promptly absorbing the cash surplus like a regular sponge, thus gaining time - time during which the arrears had better go down.
To improve absorption quality, the central bank yesterday launched its first deposit certificate issue worth 5,000 ROL, due in three months. Although the issue was oversubscribed, the NBR raised just over 4,600bn ROL at a maximum interest of 20.35% a year.
razvan.voican@zf.ro
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