Isarescu: Potential real-estate boom caused by low interest rates


The BNR governor plead for a more detailed analysis of the structure of capital flows to Romania.

The low interest rates implemented throughout Europe could generate a new wave of investments in land properties and construction projects, many of which are speculative in nature because people who have savings will want a reward for the money they have set aside,  BNR governor Mugur Isarescu said yesterday in the opening speech for the statistics colloquium. “Discussions at the moment are centered on the same things (editor’s note – speculative investments in real estate) because of these low interest rates nearing on zero. The equation is rather simple – do people who have money set aside want to benefit from low interest rates, at least, but ones which are real positive? At present, they can see that they are being penalized by real negative interest rates. What can they do with their savings? Place it in something with a potential for value increase. But the value can only increase up to a point. What is this point in any kind of speculation? The old saying about the king’s clothes… until someone cries, ‘The king is naked.’ The perception changes afterwards,” Isarescu explained.
The BNR official reiterated the fact that an analysis of foreign investments made between 2005 and 2008 shows a large portion of the land property or real estate purchases were purely speculative, and, in this respect, he pleaded for a more detailed analysis of the structure of capital flows to Romania. “I said it then too – in Otopeni, no one can say whether someone wants to buy land for speculative purposes or to settle there (…). The situation gets more complicated if you want to gather more sensitive data. ‘What do you plan to do with the investment, when will you make the actual investment, where will you get the money from?’” the BNR governor added. He pointed out that the data which should be taken into account are statistics and credible, efficient, and as detailed as possible data. “Nothing is more important for the monetary policy than good statistics,” Isarescu said.
World analysts argue the asset speculations on the Eastern European market are one of the undesired effects of the lax monetary policy practiced by the European Central Bank (ECB) in order to support a Euro Zone threatened by deflation. The global economy is on the path to recovery, but the situation in the Euro Zone remains delicate. The Dutch economy contracted again in the first quarter, the French market stagnated, and Germany’s GDP has not been increasing as steadily as before. The 0.5 percent inflation is well below the ECB’s 2 percent target and absolute prices could drop soon.
Sources: BNR to cut back foreign currency MMRs as of July 1
Starting early next week, BNR will cut back the foreign currency mandatory minimum reserves from the current value of 18 percent of banks’ liabilities, in response to the ECB’s lax monetary measures, and interest rates could start to drop again this fall if the inflation prognosis slides below 3 per cent. “This reserve has become expensive for BNR (given low returns and the ECB’s policy). Next week, the foreign currency mandatory minimum reserves rate will be reduced. There is about EUR 3 billion there now,” official sources have stated for Mediafax.
In early June, the ECB lowered the monetary interest rate to a new all-time low from 0.25 to 0.15 percent and the banks’ deposit rate to -0.1 per cent, thus becoming the first large central bank to tax banks for money kept in ECB accounts.

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