Section I Finance & Accounting
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SECTION I FINANCE & ACCOUNTING THE ANALYSIS OF THE OPERATIONAL FRAMEWORK OF THE ROMANIAN NATIONAL BANK’S MONETARY POLICY, IN THE CONTEXT OF THE EUROPEAN MONETARY INTEGRATION Anişoara Niculina APETRI 1 Irina Ştefana CIBOTARIU2 Camelia Cătălina MIHALCIUC3 ABSTRACT The monetary policy has an impact on the real economy through the financial markets and the anticipations on the ones participating on them. Therefore, the reactions triggered by the monetary policy decisions are felt, first of all, on the financial markets and, further on, having repercussions on the expenditure, the production, the labor force occupation and, finally, on the prices. In order to fulfill its fundamental objective of assuring and maintaining price stability, the RNB must dispose of a coherent and functional transmission mechanism and a set of monetary policy instruments, by which to influence the real macro-economical variables. The National Bank has the possibility, by the operational framework of the monetary policy and, especially by the monetary market operation, to influence the inter-banking interest rates which, at their turn, influence the interest rates practiced by the banks in the relations with the non-banking clients. The conclusions of the made research show out that the modifications made by the RNB at the level of its instruments aimed, on one side, to increase the role of the interest rates within the framework of the monetary policy transmission mechanism and, on the other hand, to harmonize them with the set of instruments and procedures of the European Central Bank, so to bring them close to equality. But, the functions, the characteristics and the efficacy of the monetary policy instruments used by the RNB are partially different compared to the ones specific to the ECB. In the following period, the RNB’s monetary policy mainly aims to gradually assure the nominal and real convergence with the EU countries, the main target being to include the national currency in the Exchange Rate Mechanism II and the adoption of the euro currency in 2015(..?). KEY WORDS: Monetary Policy, the Refinancing Mechanism, the Open Market operations, the Minimum Obligatory Bank Reserves Policy JEL: G18, G20, G21, G28 1 Lecturer PhD Student, „Stefan cel Mare” University of Suceava, Faculty of Economics and Public Administration, Romania, [email protected] 2 Lecturer PhD, „Stefan cel Mare” University of Suceava, Faculty of Economics and Public Administration, Romania, [email protected] 3 Lecturer PhD, „Stefan cel Mare” University of Suceava, Faculty of Economics and Public Administration, Romania, [email protected] 1 1. INTRODUCTION The operational framework of the Romanian National Bank’s monetary policy The operational framework of the RNB monetary policy, made of the instruments and procedures by which the national bank implements its monetary policy, evolved in time, as consequence of a process of adaptation to the development of the financial markets and of the economy, and gradual alignment to the Central European Bank’s monetary policy. In Romania, the reorganization of the banking system, on two levels (consequence of the legislative initiatives taken after 1991), the liberalization of loans and interest had serious involvements on the monetary policy instruments. As such, the direct monetary control instruments (loan planning, interest rate level establishment, etc.) became less operational, and the central bank no longer had the monopoly of distributing the loans in the economy. In this context, the RNB gradually introduced, by elaborating specific regulations, the indirect monetary policy instruments: the refinancing mechanism; the minimum obligatory bank reserves; the open market, assuring the general regulation of the banking sector’s activity. 2. THE REFINANCING MECHANISM OF THE COMMERCIAL BANKS The refinancing mechanism is a monetary policy instrument, by which the central bank exerts its final instance creditor function. The refinancing loans are short- term loans (90 days maximum), given under certain conditions (terms, interest, use), established by the RNB, and have as a purpose to supply, with money, the commercial banks. For these credits, the commercial banks have to create guarantees, differing from one type of credit to another. In April 1991, the Romanian National Bank abandoned the lending limit for the commercial banks and introduced the refinancing of the banking companies, based on a global loan, within a limit that was established on a central level. In October 1991, the first refinancing regulation of refinancing the banking companies was approved, by the RNB, and stipulated the following credit types: the credit line (or structural credit), the auctioning credit and the fixed-term credit (special credit). In 1994, to the mentioned refinancing credits a new category was added, the overdraft. In 1995, the RNB emitted a new refinancing rule, creating the obligation, to the commercial banks, to make guarantees for the refinancing credit and introducing restrictions for the overdraft (renamed as lombard credit). According to the new refinancing regulation, four categories of credits given by the RNB were put into practice: the structural credit, the auction credit; the special credit; the lombard credit or the day-to-day credit. The credit categories put into practice by the RNB to refinance the commercial banks fluctuated significantly from one period to another. According to regulation 1/2000 and taking into account the further modifications and additions imposed by the adoption of the new law concerning the RNB status (law 312/2004), the modification of the banking law (law 58/1998 regarding the banking activity was modified by law 227/2007 to approve the GEO 99/2006 regarding the credit institutions and capital adequacy) and Romania’s entering in the European Union, the permanent facilities to which the credit institutions have access on their own will is categorized as follows: 2 1. The loaning facility (the lombard credit) allows an eligible credit institution to get, from the national bank, a one-day credit in exchange for guarantees and predetermined interest rate. The eligible participants to which the RNB gives permanent facilities and with whom monetary policy operations are made are: the banks, the mortgage loan banks, the central houses of building societies, the saving and loaning banks in the housing sector, Romanian companies and Romanian branches of all the credit institutions from allover the EU or third-countries, except the Romanian branches of the credit institutions that emit electronic currency. The credit institutions’ loaning by the RNB is regulated also by the law regarding the RNB status, according to which the central bank can give loans to the credit institutions for 90 days at most, guaranteed with eligible assets (state titles, deposits made at the RNB etc). The assets that are eligible for transaction and guarantee are the state titles, the deposit certificates emitted by the RNB, other categories of eligible assets that are negotiable, set as such based on a decision made by the RNB Administrative Board. 2. The deposit facility allows a credit institution (in general, to the eligible participants) to value their liquidity excess by creating one-day deposits, at the RNB, at a predetermined interest rate. The interest rates afferent to the permanent facilities delimit the variations of the overnight interest rates on the markets. The permanent facilities offered by the National Bank to the credit institutions serve to: absorb or provide with liquidity on short term (one day); signal the monetary policy orientation; contribute to the stability of the short term interest rates on the inter-banking monetary market, through the corridor made by the interest rates afferent to the loaning and deposit facilities. After February 2009, the RNB started a monetary policy relaxing process, materialized in the reduction of the monetary policy interest rate and of the interest rates of the permanent facilities, and the diminution of the obligatory minimum reserves’ rates, as consequence of the risk diminution at the address of the price stability and economical activity deteriorating, including the deterioration of the bank loaning activity (Figure 1). Figure 1 - The evolution of the RNB interest rates, from March 2008 to March 2010 Source://www.bnro.ro/Rata-dobanzii-de-politica-monetara-si-ratele-dobanzilor-la-facilitatile- permanente-1744.aspx 3 Analyzing the refinancing mechanism of the commercial banks by the RNB, the following aspects can be emphasized: the functioning and efficiency of the refinancing mechanisms were distorted by the fact that, in certain periods of time, both the refinance volume and the interest rate afferent to it were influenced by Government Decisions or Parliament laws and were not established, independently, from the monetary authority. Under these conditions, the liquidity control from the banking system was tough to make, and by administratively establishing (by normative acts) the interest rates, these were, several times, located on the real-negative interval (the rates of the active interests of the RNB were situated, from 1992 to 2000, under the inflation rate), meaning the reduced use of the interest rate as a monetary policy instrument; giving credits based on normative acts and not market criteria favored, for that moment, certain banks (with state capital, especially Bancorex and Banca Agricola), who benefited of cheap resources without making any effort