Economic Growth and Lending
The National Bank of Romania has cut the reference interest rate to an all-time low of 1.75% per year and the minimum reserves for liabilities in the national currency to 8%.
România Internațional, 07.05.2015, 13:53
Romania has one of the highest monetary policy interest rates in the European Union. In Poland, for example, it stands at 1.5% and in the Czech Republic at 0.05%, as in the other euro zone countries. The decision taken on Wednesday by the National Bank of Romania to reduce, once again, the monetary policy interest rate to an all-time low of 1.75% per year from 2% as of May 7th, caught the banking sector by surprise.
Most analysts believed the National Bank would maintain for a while the 2% level set at the end of March. Moreover, the Bank also decided to cut the level of minimum reserves for liabilities in lei from 10 to 8% and maintain those in hard currency, at 14%, starting on 24th of May. According to the National Bank governor Mugur Isarescu these measures are designed to stimulate lending so as so encourage sustainable economic growth while maintaining real positive interest rates for bank deposits. The cut in the reference interest rate, says Isarescu, was mainly the result of the fact that the inflation rate has stayed at a very low level, while the cut in the VAT for food from 24 to 9% on June 1st will lead to a close-to-zero inflation rate in the next 12 months. He said the inflation rate might return to the figures targeted by the National Bank of Romania in the last quarter of 2016.
This scenario, however, does not take into account the effects of the general VAT cut from 24 to 20% taking effect next year, a measure stipulated by the new Fiscal Code, currently under debate in Parliament. For the time being, its impact is only being assessed as part of a different chapter dealing with “risks, says Isarescu:
“The main risks about the current estimate have to do with the external uncertainty generated by the situation in Greece and the euro zone, regional geo-political tensions and the different monetary policy approaches of the worlds main central banks. On a domestic level, our main concern is related to the consistent implementation of the macroeconomic policies established together with international institutions and the intensification of structural reforms. There is also uncertainty about the impact of the upcoming changes in the fiscal framework and the effects of the agricultural year and the timetable for the adjustment of regulated prices.
According to the governor of the National Bank of Romania, there can be no talk of deflation in Romania yet, a phenomenon that involves a change in expectations regarding prices and consumer behaviour.
