HVB believes in inflation reduction

Surprise cut of deposit interests: without being a major player on the retail market yet, HVB Bank has operated a drastic reduction of interests paid for individuals’ deposits, to 10% for one-month deposits and 8% for deposits due in one year. The new levels are 2.5-3.5 percentage points lower than interests offered previously.

The interest reduction comes at a time when most analysts anticipate an inflation rate of at least 8% in 2005.

HVB’s announcement came after several banks of various sizes had operated deposit interest reductions, in some cases hidden behind some interest cuts related to ROL-denominated loans.

No other bank besides HVB has made such a courageous move, though, suggesting blind confidence in the further reduction of inflation to 7% by the end of the year, or ignorance of the risk that such interests would become, even temporarily, real negative ones in case price surging risks materialise, at least in the first half of this year. Recently arrived on the retail segment, ABN Amro offers an 11.5% interest for one-month deposits and 10% for one-year ones. Certainly, neither of the two banks holds a significant position on the retail market, but they are both major players on the interbank market, and a move of the kind HVB made cannot go unnoticed.

Under the circumstances, customers will quickly realise, amid discussions pertaining to the long-awaited reductions of loan interests, that banks show no reluctance in slashing deposit interests.

For the time being, the top two banks on the market, BCR and BRD are not rushing to adjust interests paid to their depositors, offering quite similar rates: 14% for one-month deposits, to 15.25%-16% for one-year ones.

Such levels have provided for substantial real gains, given that 2004 witnessed inflation of 9.3% calculated December to December.

This interest reduction for ROL-denominated deposits can be considered convenient, given the upcoming opening of this category of placements to foreigners that are drawn to it by the still high real yields.

Bankers, however, bear in mind the experience of 2003, when the sudden lowering of deposit interests quickly scared away depositors, who decided to withdraw large sums from banks.

At levels of 11-12%, interests can very easily slide toward the real negative area, at least during certain months, when inflation can bounce back.
razvan.voican@zf.ro