Higher interest rates for loans

Central Bank's recent decisions will raise the interest rates for loans in the Romanian currency

Corina Cristea, 10.02.2022, 02:06

In Romania, the monetary policy interest rate has been increased from 2 to 2.5% per year. Also, the Board of Directors of the Central Bank of Romania has decided to increase by 0.5% the interest rates for banks that borrow from the national bank, as well as the interest rate for the amounts that lending institutions keep in the accounts of the Central Bank. The three-month Romanian Interbank Offer Rate (ROBOR), the index based on which the cost of consumer loans in lei with variable interest rate is calculated, rose to 3.29% per year – the highest value recorded in the last three years- and the 6-month Robor index, used in the calculation of interest rates on mortgage loans in lei with variable interest, went up to 3.43%.

The decisions are meant to temper inflation – one of the levers through which the Central Bank can intervene in this regard is to reduce consumption by increasing the cost of access to money – and are justified by the forecasts made by national bank experts, according to which the inflation rate would reach a double-digit figure soon. And that after last year the annual inflation rate increased by 6.13 percentage points, from 2.06% in December 2020.

Here is the Economic analyst Constantin Rudnitschi with more:

“We knew it was coming. What is surprising somehow is that this time the National Bank increased the rate by 0.5 %, which is quite a lot. And what is even clearer, according to the communique, is that inflation is expected to get even higher, support measures for the population and for companies to reduce electricity and gas bills are not convincing and so its natural for inflation to be the number one enemy in the first half of the year. “

It is estimated that the annual inflation rate will increase significantly in the second quarter of 2022, mainly as a result of much larger-than-expected increases in natural gas and electricity prices, which will stand out significantly after the suspension in April of compensation schemes applied to household consumers.In the second half of 2022, the annual inflation rate would gradually decrease, then experience a relatively steep downward adjustment in the first part of next year, in order to be able to re-enter the range targeted by the Central Bank, i.e. 1.5 – 3.5%, but only in the last quarter of 2023. According to Eurostat data, Romania ranks 6th among Member States in terms of the level of the annual inflation rate at the end of last year. (MI)