NBR raises interest rate by 0.5% to 8% a year

NBR has taken one more step towards making lending in RON more expensive, when it upped the key rate by 0.5%, to 8% a year yesterday. Analysts believe that sooner or later customers will feel the tightening of the monetary policy through the increase in deposit and credit interests, particularly because of the increases through probable for the coming period.
The central bank explains the decision it made yesterday was prompted by the recent rapid private lending increase, which keeps consumption at unsustainable levels.
“The analysis of the latest statistical data reveals that domestic demand remains high as a result of investment expansion and of the consumption remaining at unsustainable levels given the higher speed at which lending to the private sector, and especially that in foreign currency is increasing,” NBR’s Board of Governors explains. The central bank, however, does not have any leverage left to use to influence the cost of foreign currency loans significantly, given that bankers have found ways to dodge restrictions over the last few years.
Still, some analysts believe increases for the mandatory foreign currency reserves may happen in the future.
Ionut Dumitru, head of Raiffeisen Bank’s research department believes that after the increases of the monetary policy rate, interests offered to customers will inevitably increase. “Banks are pressured by competition, yet they only are waiting for someone to take the first step and then rally,” Dumitru says. He anticipates new increases of the key rate for RON.
Florian Libocor, BRD-SocGen’s chief economist does not expect an immediate impact on the lending growth rate, after NBR’s decision yesterday. Still, he emphasises that NBR will most likely raise the interest rate by half a percentage point again during the next meeting in February.
Those that have loans in RON to repay, whose interest is indexed in line with the interbank monetary market indicator (BUBOR) are already feeling the effects of the tightening of the monetary policy. Compared with the end of September, BUBOR for three months was up one percent yesterday, to 8.4% a year. Therefore, for a five-year 35,000 RON, an increase of the rate from 12% to 13% a year would cause the monthly instalment to go up from 778 to 796 RON.
NBR’s decision to raise the key interest on RON by 0.5% to 8% met the expectations of the market, yet analysts are already talking about further tightening of the monetary policy market over the coming months, given the build-up of significant inflationary pressures.
Radu Craciun, head of investments of Interamerican Pensii notes the “firmer message” than conveyed in the previous releases.
The central bank decided yesterday to continue “the firm management” of the liquidity on the monetary market and maintained the minimum mandatory foreign currency reserves at 40%.
Short-term inflationary prospects have worsened due to the increase of the macroeconomic risks, especially of those related to the revenue policy and to the increase in budgetary spending during the electoral period, as well as to the uncertainties about the investor sentiment towards the emerging markets, NBR’s Board of Governors explains.