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May 11, 2021

Bloomberg: National Bank of Romania is close to first interest rate increase of last decade

The National Bank of Romania (BNR) is close to having the first key interest increase of the past almost ten years, after seeing inflation return and the economy recording one of the fastest growths paces in Europe, reports Bloomberg.

Although eight of the thirteen economists who participated in the study conducted by Bloomberg expected that after its meeting of January 8 to discuss monetary policy the BNR would maintain the key interest at a record low level of 1.75 per cent, five of them estimate an increase of 2 per cent. Unless this happens this precise week, the analysts expect an increase in the first quarter of 2018.

Romania moves, thus, one step closer to the Czech Republic and Great Britain, who increased their borrowing costs, even if governor Mugur Isarescu warned that increasing of the interest rate before the Central European Bank risks to impact financial stability. However, the Central Bank doesn’t have so many alternatives at hand: inflation surged in November until it reached the highest level of the past four years, although tax cuts and salary increased in the public sector brought an annual economic growth of 8.8 per cent in the third quarter of 2017.

ROBOR (Romanian Interbank Offered Rate), the average interest rate based on which the banks borrow each other, climbed 120 basis points over the past six months, currently exceeding 2 per cent, which is the highest level recorded in the past three years. While missing last year’s “rally” of regional currencies, from Prague to Warsaw, the Romanian leu managed to appreciated by 0.7 per cent against euro in 2018.

On the occasion of the meeting on November 7 focusing on monetary policy, the National Bank of Romania’s Board of Directors decided to firmly deal with the liquidity in the banking system and keep the current levels of the mandatory minimum reserve rates applicable to liabilities denominated in lei and foreign currency of the credit institutions. Moreover, Mugur Isarescu voiced his fears that the fiscal policy could have confused the business environment and triggered warnings from the European Union regarding the budget deficit.

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