Rise in key rate to lead to higher interest and a stronger leu

Shortly after the announcement by the central bank, the leu appreciated 0.07 units, to 3.6095 RON/€1.

BNR was expected to raise the key rate, but analysts had foreseen an increase by 0.5-0.75 percentage points, at most. Another decision which took the banking sector by surprise was the increase of provisions for foreign currency loans above the current 5 percent level.

This increase in the key rate, the second already this year, is expected to be followed by banks raising their interest raise. “Bancpost will surely increase interest on loans and deposits, and we will soon announce these levels. The reaction of banks will be swift,” according to a statement for Business Standard by Bancpost President, Mihai Bogza. Banca Transilvania, another top lender, is to decide within one week if it will increase interest rates.

The decision to increase provisions is a added pressure for commercial banks, mainly meant to discourage lending and slow consumption, according to economic analysts