The National Bank's (BNR) decision to cut back the key interest to 7 percent from 8.75 percent at the beginning of 2007, will not diminish foreign investor interest in the Romanian currency, but rather put more pressure on interest for finances attracted by commercial banks, analysts say.
Their forecast on changes brought about by a drop in the key rate does not include a similar drop interest rates for loans, as minimum compulsory reserves remain stable. Bankers have virtually ruled out reducing interest rates until the level of compulsory reserves decreases, and the only factor leading to a drop is competition on the banking market.
Another reason for keeping interest rates steady is a concern of renewed inflation pressures in this year's second semester. "I do not think that interest rates for loans will be reduced, because this both a way to keep the RON steady and a safety measure for BNR as far as loans are concerned," according to Dragos Cabat, Vice-President of the Certified Financial Analyst Romania (CFA) association.
Both Cabat and Radu Ghetea, the head of the Romanian Banking Association and CEO of the state-owned CEC national savings bank, agree that interest for deposits is likely to drop 0.25-0.5 percent in the coming months.
However, other analysts do not foresee a drop in deposit interests, as most commercial banks have not applied this measure following previous key rate cuts. "I do not expect the key rate decrease to impact the market," said Florian Libocor, BRD Groupe Société Générale Financial Analyst.
Strong RON
BNR applied four key rate cuts because of the national currency's constant appreciation. The RON-EUR rate reached 1/3.2 this year, a five-year record.
