The European Central Bank (ECB) and Romania's National Bank (BNR) have agreed to set up a repo line arrangement.

Under this agreement, the ECB will provide euro liquidity to the BNR to address possible euro liquidity needs in the presence of market dysfunctions due to the COVID -19 shock, BNR announced.

Under a repo line, the ECB provides euro liquidity to a foreign central bank in exchange for high-quality euro-denominated collateral. Under the new repo line, the BNR will be able to borrow up to EUR 4.5 billion from the ECB. The maximum maturity of each drawing will be three months. The repo line will remain in place until 31 December 2020 and can be renewed.

BNR officials explained that the facility had been negotiated in advance, "when the situation was tenser," implying that there is no urgency to draw any funds. "We have not planned to draw any funds yet. We negotiated this repo line earlier, in March-April, when the situation was tenser. We'll decide whether we access this repo line or not, and when. We might not use it at all. [But] it can be extended," said BNR spokesman Dan Suciu, quoted by Ziarul Financiar.

Other central banks in the region have also made arrangements with the ECB for preventive financing lines. In April, the Bulgarian central bank and the ECB agreed on a precautionary swap line to provide liquidity in euros.

The line worth EUR 2 bln will be available by the end of 2020 or as long as necessary. At the same time, the Croatian central bank has reached an agreement with the ECB on a EUR 2 bln swap line in the event of market failures.

(Photo: Wynnyk/ Dreamstime)

editor@romania-insider.com