The National Bank of Romania's intervention rate is finally about to go back to last year's levels: the second cut, 0.75%, which was announced yesterday, pushes the rate down to 20% annually for the one-month deposits attracted by banks, which is still high as compared to the 18.25% registered in July 2003.
However, bankers feel this move will not make a significant impact upon the interest rates levied by banks.
"Given a cumulated drop of 1.25 points, it is only natural for the banks to start adjusting the rates they use for clients, but not to such a significant extent as to have an impact upon lending and upon savings, respectively. By September, the rate drops will probably build up to three percentage points," said Sergiu Puianu, head of the actives&passives department at HVB Bank Romania.
"This 0.75% step anticipates further such measures, up to a point. However, I do not think this will make a big difference, as they started from an interest rate of 21.25%," says Claudiu Cercel, head of the market operations division at BRD (Romanian Development Bank). "We will not witness significant changes in the deposit rates, first of all for competition reasons, as the banks are increasingly focusing on commercial approaches that can secure them a loyal client base," Cercel added.
"We may expect rate cuts in the next period (which could mean even two-three months), mainly in lending, but I don't think they will match the extent of those cuts operated by the NBR. Still, a 0.5-0.75% rate cut could be feasible at this point," says Ionut Costea, president of Raiffeisen Banca pentru Locuinte (Raiffeisen Housing Bank).
It had been well over a month since the National Bank's Board had decided to cut the interbank market intervention interest rate by 0.5%, after six months of stagnation at 21.25%, which is a high level.
The inflationary trend remains the main support of the National Bank's decision, albeit it went up slightly in June, reaching 0.6%.
Even so, inflation in mid year was 3.7% compared with December 2003, while the annual rate reached a new all time low of 12% compared with 12.3% in May. The disinflation performance beyond expectations was the main argument underlying the first rate cut on June 7, as well.
"The NBR's decision was necessary because it was triggered by favourable evolutions, both at the macroeconomic and microeconomic levels, which BCR (Romanian Commercial Bank) has already signalled. We are heading for the same interest rate levels we had last year. As for deposits, the rate changes will not be spectacular at all," says Cornel Cojocaru, BCR spokesperson.
In his turn, Finance Minister Mihai Tanasescu instructed banks to lower interests rates on ROL loans this spring, implicitly nudging NBR to do something in this regard, as there is no stronger direction for the commercial banks than the interest the central bank pays to drain the liquidity surplus on the market.
However, negative signals from the current account deficit (20% annual growth in April) remain, as the deficit of the trade balance, the top pressure factor, has visibly deteriorated in May (plus 27% in euros from May 2003).
Consequently, NBR has insisted on an extremely cautious approach, involving assessment of the macroeconomic trends before every rate cut, avoiding to build clear market expectations of the frequency and extent of each step.
At the same time, the first cut, although really small, 0.5% was hinting towards an approach based on small steps taken relatively often, which would allow to narrow the gap between the interest rate and the inflation rate.
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