Companies and people alike will stand to suffer and unemploymentwill rise even further as a result of NBR's decision to halt thereduction of the key rate, because this way loans will no longerget cheaper, and the final impact will be a slowdown of the economyover the span of several quarters, ING Bank Romania says.
At the same time, a banker that spoke under condition of anonymitysays he is "very confused" by "NBR's disproportionatelyrestrictive" policy for an economy in recession.
"One year from the onset of the crisis you keep an additional cost(via minimum mandatory reserves i.e.) of 1.5%. The problem is thatwe would stimulate domestic demand? We are afraid of a 0.5% addedto inflation and we are not looking at unemployment? I am veryconfused." He believes that with this approach, the NBR is onlydriving clients to loans in foreign currency, which remain muchcheaper.
"This decision will lead to a rise in interests on the interbankmarket, especially of the long-term rates, which were taking intoaccount a relaxation of the monetary policy - which means interestson loans for clients will no longer go down and that will slow downthe economy for several quarters if high interests remain in place.Therefore, companies and people alike will stand to suffer, andunemployment will increase more than anticipated," says NicolaieAlexandru-Chidesciuc, ING Bank's chief economist. He explains thatthe NBR maintains a restrictive monetary policy, although Romaniais experiencing a much more profound decline compared with othercountries in the region which have a flexible exchange rate systemin place.
Radu Ghetea, CEC Bank and Romanian Banking Association chairmansays that interests on deposits in RON should remain in theone-digit bracket, so as to avoid making loans moreexpensive.
"I still believe that interest on deposits needs to stay one-digitif we are to actually achieve something. This will be our policy.There can also be immediate reactions. A year ago some banks werequick to react and drove the interest to 28% a year. Some bankswill be very quick to react - the treasury banks, which are notinterested in lending but in making profit," Ghetea says. NBR's isstill the highest interest in the region, with the real interestrate of the market standing at 6-7%.
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