The National Bank of Romania (NBR) cannot guarantee that the ROL lending costs will see a significant drop before the end of 2005, and this particular timeframe will be met only if the inflation rate continues to go down as scheduled, to 6%. The central bank's stance should steer the market towards domestic currency lending.
Until it can be certain that the inflationist pressure risks are being constantly narrowed down, the National Bank is not taking any chances by allowing rates to "loosen up."
"Inflation may reach 6-7 percent in 2005. Should it go down to that level and should there be no more inflationist or exchange rate pressures, it is possible that the NBR intervention rate should go down, maybe even somewhere around ten percent. Under those circumstances, lending rates could also go down to about 15%, maybe even less," Mihai Bogza, Vice-Governor of the National Bank of Romania told Ziarul Financiar's "Choosing the currency of a loan denomination" seminar.
The National Bank is currently mulling a cut in the intervention rate before the end of the first half of 2004, depending on the evolution of the main macroeconomic indicators, Bogza said.
"The encouraging inflation trend is likely to prompt the first cut in the intervention rate before the end of the first half," Mihai Bogza added.
According to the National Bank Vice-Governor, the instruments that the central bank can use to fight inflation are now "extremely strained," and support is greatly needed from the real economy. "We cannot afford to risk losing the battle against inflation, which has not been won yet, despite the overperformance registered in the first quarter," the NBR official added.
The intervention rate accounts for the rate paid by the central bank for the deposits attracted from banks as part of the monetary policy operations. Since last August, the National Bank has raised the intervention rate three times, up to 21.25% annually, for the deposits maturing in one month.
The measure enforced by the central bank was needed to offset the soaring domestic consumption, which triggered an unprecedented surge in imports.
Despite the repeated NBR interventions, the current account deficit of the balance of payments went up to six percent of the Gross Domestic Product. Still, the monetary levers kept inflation in check, so that the 14% inflation target scheduled for 2003 was only exceeded by 0.1% eventually.
The National Bank of Romania official also warned that interest rates would not embark on a rapidly declining trend. Should inflation go down to 6-7 percent by the end of next year and should the future hold no more inflationist pressures, the central bank's intervention rate may go down to ten percent.
"Should this happen, the banks would work with interest rates revolving around 14-15%," Bogza stated.
razvan.voican@zf.ro
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