Mugur Isărescu, NBR governor, said Romania has reached thelimit when it comes to the state borrowing cheap, which means thatthe entire economy should be prepared to take into account risinginterest rates.
Since the start of the year, the Finance Ministry has beenstriving not to pay an interest rate of above 7% for RON, but thesums 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 FinanceMinistry should repurchase bonds worth 1.4m euros issued last year,but it will most likely try to roll them over given that funding isat the limit.
"We are at the limit of a relatively cheap funding of ourdeficits. Should we have bigger deficits, the entire deficitincrease goes into the interest account, for the rising borrowingcosts," Isărescu said.
In his opinion, the medium-term challenge is securing fiscalstability without endangering economic growth outlooks.
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