Banks find one more ROL rate hike irresistible

Before starting to fall, the interests on the market of ROL lending went up once more in May both for individual and corporate clients. And despite the ongoing debate on the too high cost of funding in the domestic currency, the interests on ROL have reached the last twelve months’ highs.

The data collected by the National Bank of Romania (NBR) show the average interest rate on ROL loans for individual clients was back at over 30% a year in May, close to an all time high, in the wake of the slight decline in April.

The average interest for corporate clients rose by almost one percentage point to 25.7%, the highest level since November 2003.

In other words, banks made sure once more that they had what it takes to operate the necessary interests cuts, as the increases in May cannot be explained by the lending costs.

This happened for the loans in euros, as well.

NBR’s 2003 report explained the monetary policy interest decline in the first few months of last year by the slower start of the economy, especially of the industry as well as by the tempering of the inflationary expectations.

Whereas the argument of inflationary expectations becoming lower is even more valid for this summer, the economy dynamic and the industrial production situation, respectively, is exactly the opposite, with growth paces that suggest overheating.

As for maintaining the budget deficit within very tight limits, NBR still regards it as a guarantee and as a stimulant to decrease the intervention interest rate at the same time.

After all, the economists in Brussels recommend Romania to embrace a monetary policy of the utmost austerity, considering the fast economic growth pace, so that the budgetary deficit lever could be kept as a fail-safe solution for when the economy drives are starting to slow down.

There is also the very actual argument of a high risk of attracting speculative capitals, which are more and more responsive to the high yields on the Romanian market, in spite of the still incomplete capital account deregulation. The problems it can create first of all by opening non-resident access to making banking deposits in ROL should be covered in the final negotiations on Chapter 3 – Free movement of services in the banking and insurance sectors.

razvan.voican@zf.ro