Loans, about to get more expensive

ROBOR, the interbank rate that influences directly the interest rates of Romanians who took out loans in the domestic currency, has gone up fast, reaching its highest level in the past three years. Consequently, there will also be a rapid increase in interest rates, a situation that has worried hundreds of thousands of Romanians who took out loans and who will now have to pay higher interest rates.

Central Bank Governor Mugur Isarescu explains what triggered this situation: “What has happened this month? The answer will surprise you: an improved tax collection. We managed to collect more than we expected, and more liquidity has been absorbed from the banks. Taxes and duties are paid on the 20th and 30th day of every month. On these dates people’s and companies’ money that are kept in bank accounts goes to state treasury’s account, at the National Bank of Romania. So this money does not go from a commercial bank to another, but directly to Romania’s Central Bank. This is the equivalent of liquidity absorption. After the 5th or 6th day of the next month, this liquidity is injected into the market and goes into pensions, payments for investment and so on. These operations are cyclical.”

The lack of liquidity on the market has prompted the Central Bank to take action. The institution’ spokesman, Dan Suciu, gave details in an interview on Radio Romania:  “The decision to inject liquidity into the market has been taken, that is to lend money to banks based on some guarantees. This is a temporary loan granted to banks to compensate for this lack of liquidity that has been felt on the market lately. It is an injection of liquidity of nearly 2 billion euros, for a well-determined period of time, to allow banks to regulate their need for liquidity and stop the small increase in interest rates. It’s important to say that the growth of the ROBOR index was something we all expected. Also, interest rates have a tendency to increase globally. This tendency is also felt at domestic level due to internal factors, such as inflation-related pressure.”

The question is whether the ROBOR index will continue to grow. Dan Suciu explains: “As Central Bank Governor Mugur Isarescu said, we are not selling people illusions so we are not saying ROBOR will return to sub-unitary levels, as was the case in summer and last year. We had a record low interest rate, it was a very special period, an exceptional one, market-wise. If we were to question the dynamics of the ROBOR index, we should have done it last year and in the first half of this year, and wonder why it has been so small. We all need to understand that the exchange rate and interest rate may vary. It is their nature, as effects of the market, which in turn is shaped by a certain economic background.”

The increase in interest rates for the loans in lei is a certainty. Nevertheless, it is the general economic context that will decide how much and for how long. Central Bank spokesman Dan Suciu believes we will continue to have a steady economic growth: ”Unfortunately, this economic growth is given almost exclusively by consumption. We will also have inflation-related pressure, which can already be felt. The Central Bank has already forecast an inflation rate of 1.9%. This level may also be maintained at the next inflation forecast in November, which will take into account the increase in prices up to that moment. Of course, the economic environment is stabile with certain characteristics and differences as against previous years, when we had different inflation rates.”

We should also note that the month of October, for instance, has brought increases in fuels, while in November the price of natural gas for household consumers will also go up. Under these circumstances, in spite of the economic growth, developments on the financial market do not give us reasons to be optimistic.