Romanian economy in for rising interest rates

29 oct 2010 Autor: Claudia Medrega

Mugur Isărescu, NBR governor, said Romania has reached the limit when it comes to the state borrowing cheap, which means that the entire economy should be prepared to take into account rising interest rates.

Since the start of the year, the Finance Ministry has been striving not to pay an interest rate of above 7% for RON, but the sums it raises are quite small compared with its funding need. However, banks' push to get a higher interest rate is quite strong.

For euros, the Finance Ministry in late July paid banks a 4.9% interest per annum, raising 1.2bn euros. Next month, the Finance Ministry should repurchase bonds worth 1.4m euros issued last year, but it will most likely try to roll them over given that funding is at the limit.

"We are at the limit of a relatively cheap funding of our deficits. Should we have bigger deficits, the entire deficit increase goes into the interest account, for the rising borrowing costs," Isărescu said.

In his opinion, the medium-term challenge is securing fiscal stability without endangering economic growth outlooks.

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