NBR has given banks the signal: a 1.25% cumulative reduction of the intervention interest, the main benchmark of the market, signals that it's time for you to move. This is certainly true in the case of credits, less so in regarding deposits.
The market is however reluctant to move right away, though the reduction in the intervention rate to 20% provides a certain basis for reconsidering the level of interest in relation to customers. Medium-sized banks are waiting to see how leading banks respond, while the latter prefer to carefully contemplate a possible adjustment of interest rates. The big question of the moment is who will dare modify interest with regard to deposits. In public statements, officials from the commercial banks and the NBR are constantly mentioning the risk of discouraging the tendency to save, which is already a rather fragile trend. However, concerned as they are about preserving gain margins, banks may also reduce interest on deposits, given the narrowing gap between the 20% NBR interest rate and that of about 16% received by customers on their deposits.
The step will most likely be taken next month, after the third reduction in the intervention interest. Thus, interest on deposits might again tumble toward the 10-11% mark, slightly higher than the rate of inflation.
But what are the chances of credit, denominated in the domestic currency, becoming cheaper? The largest bank on the Romanian market, BCR, does not seem to be rushing to embrace such reductions, after cutting interest by 1-2 percentage points on average one month ago. On Monday, however, an executive committee is to be convened and it is likely to take some steps in the direction of new interest adjustments. In the case of BRD, the second largest bank in the system, the forum empowered to make decisions with regard to interest rates has arranged its regular meeting for next week, but there is no prevailing opinion in favour of such possible interest reductions.
"We are permanently monitoring where we stand against the market reference and against our rivals. We will analyse our position and whether any adjustment is necessary. BRD's portfolio includes credits with interest rates pegged against the BUBOR (the interest for deposits placed by banks on the inter-banking market), plus a margin. Thus, should the monetary market react to the NBR's decision, interest rates for the respective credits should be automatically adjusted," Marius Stoica, deputy director of the market operations department within BRD, told Ziarul Financiar.
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