X-TRADE BROKERS: Banks may use the minimum reserves freed by the NBR for speculation

Izabela Sîrbu

After the NBR cut the policy rate from 9.5% to 9%, and reduced the level of minimum required reserves for foreign currency-denominated liabilities - from 40% to 35%, and for leu-denominated liabilities, from 18% to 15%, analysts of X-Trade Brokers (XTB) are concerned banks may use the reserves released by the NBR for speculation, the press release by the company says.

"The recent steps of the NBR, intended to stimulate lending and implicitly the economic recovery, are praiseworthy and have been expected for a long time, but it is very likely a good chunk of the EUR 2 billion released will not reach the economy, but rather be used by banks for speculation, due to the fact that the number of solvent borrowers is rather low at the moment", Victor Safta, head of the Romanian branch of X-Trade Brokers says.

The expected result of these measures would be to stimulate lending, given the fact that the demand for loans is at about 30% of what it was last year, first and foremost due to the high cost of loans. The average interest rates for loans, even though they seem to be on a downward trend lately, remains relatively high compared to the policy rate.

Mr. Safta continued: "The solvent demand for loans is low at the moment, both for the individual and corporate customers, and this can lower the interest of banks to significantly cut rates and to let the amounts released by the NBR into the NBR. Their alternative is to use the money that was freed to speculate on the financial and capital markets".

Technical analysis by XTB analysts show that if the EUR/RON exchange rate passes 4.2430 lei/euro, then it will keep rising, up to the final target of 4.31- 4.35 lei / Euro. If, after an eventual correction, the exchange rate for the European currency remains above 4.2550, then the Euro will get to an exchange rate of 4.42- 4.47 lei.

"All analysis elements could be thrown out of the window, and the leu could strengthen if the banks do not use their liquidity surplus to sizably cut the interest rate for retail loans. The shortcomings of this factor are obvious: on one hand the unpredictability of the exchange rate, which affects importers first and foremost, and on the other hand, the NBR will fail to stimulate lending as intended, and its measure will have zero effect on the economy", the director of XTB concluded.