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May 12, 2021

Isarescu: More prudence for banks cutting interest on deposits; still room for cuts in loans

The banks that have cut interest on deposits too much should be more prudent because they will need cash as credit resumes, but there is still room for further cuts in loan interest rates, according to Governor of the National Bank of Romania (BNR) Mugur Isarescu.

‘As far as deposits are concerned, some banks have cut [interest] more than needed, but they have to be more prudent, although they have liquidity surpluses. They should not see the current liquidity surpluses as long lasting, as they will be absorbed as credit resumes. Others have been more prudent, at more than 2 per cent, and we commend them for having a vision for a longer term. The banks should have a vision, but they do the math as independent units,’ Isarescu told a news conference where he released BNR’s latest quarterly inflation report.

As far as loan interest rates go, Isarescu said there is still room for further cuts. ‘The banks have rightfully said they have kept a margin for them because the three-month ROBOR reference rate would have large variations. I hope they will now give a right reading to the fact that the indicator is now much more stable and they will no longer have this motivation. Of course they will draw up their own interest policies, but the stability of ROBOR will provide greater comfort to banks both in terms of loan giving and in terms of treasury operations,’ Isarescu said.

About the reaction of banks to BNR’s recent decision to cut its monetary policy rate from 2 per cent to 1.75 per cent per annum, Isarescu said he hopes it will be positive. ‘All in all, overcoming small egos, we managed to surprise them, and I believe in a positive way. You could see the price projection. It would have been impossible for us not to react to that projection. Postponing the decision would have been risky. I believe the banks’ reaction will be a positive one,’ the BNR governor underscored.

He pointed out that by the decisions it passed this week, BNR aims to protect interest rates on deposits so that they stay real positive. ‘Why do people keep their money with banks? For safety, for comfort of payments and for value protection, that is for a real positive interest, not just nominal. All the three conditions are met,’ said Isarescu.

In his opinion, average interest rates in excess of 3 per cent would discourage investment, because savings are exceeding loans. ‘We are trying to keep real positive interest at 1-2 per cent,’ Isarescu added.


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