The rapid decline of inflation over the last few months and BNR’s plan to drive up lending in domestic currency should be arguments for a rate cut or at least a cut of the minimum mandatory leu reserves. If the central bank really wants to push leu lending, then this is its opportunity to do it not just by talk or administrative restrictions to foreign currency lending, but by bringing the leu interests closer to euro interests to make the domestic currency competitive cost-wise.
Even though their expectations have not been met so far, the entrepreneurs believe this time the BNR will actually send out an encouraging signal, particularly now that hopes for a rebound of the economy next year suddenly became less likely to materialize given the worsening situation in the Eurozone.
“BNR will cut the rate to 6% in its Thursday meeting. It will be late in doing so, but I believe it will do it,” Dan Ostahie, chairman of Altex, the largest electronics and home appliances retailer in Romania, told ZF. “I believe this is a trend that BNR will continue if there are no major macroeconomic slippages.”
The entrepreneur thinks a new cut might happen in November or early next year.
The most optimistic banking analysts expect a key-rate cut for as late as the monetary policy meeting on November 2, the last meeting scheduled for this year. A cut of the minimum leu reserves appears more likely to happen, which should pressure interests and stimulate lending in domestic currency; however, the depreciation pressure the leu has been under because of the international turmoil does not necessarily agree with cuts of the interests on the market.
“A rate cut, however small, would help the economy, yet I for one believe that the biggest problem of the local economy is the risk the bank takes when lending the money. The financing cost is no longer the problem, the risk is,” says Radu Timis, chairman of the CrisTim group, one of the largest in the meat industry. He added that the economy and implicitly all consumers were more hurt by the 24% VAT and only a set of measures including a reduction of this tax could make consumer spending bounce back.
Dan Ioan Popp, chairman of real estate developer Impact, says a potential 1% rate cut would translate into about EUR200,000 savings a year for the company he runs. At the same time, it should lessen the burden of the first few years of the loans (when the interest rate has a greater impact on the monthly installment) taken out by the customers buying the apartments the company builds by 4% to 8% a year.
(English version by Loredana Frățilă-Cristescu)