Dumitru said the central bank will have to keep the ROBOR rate stable and allow the currency exchange rate to be volatile.
“ROBOR has always been very volatile because the central bank preferred to keep a stable exchange rate due to high debts on household loans, particularly foreign currency loans. The growth of the ROBOR rate was determined by fundamental and structural factors. Among fundamentals was inflation, which was negative due to a cut in the value-added tax. The period when ROBOR was below 1% was abnormal. Inflation is set to grow rapidly. We estimate it will reach 2.4% at the end of the year and over 4% mid-2018,” said Dumitru.
He added special dividends claimed by the government, amounting to RON5 billion, and bond redemption drew liquidity from the market and drove interbank rates up.
“There is pressure on the exchange rate because the current account deficit is widening rapidly and heading towards 4%. Financing this deficit is an issue as foreign direct investments have declined and EU fund inflows are also declining. I think the central bank will have to choose between stable interest rates or a stable exchange rate. I think balance will be achieved with stable interests and a volatile exchange rate,” said Dumitru.
Romanian private lending is 60% covered by loans in lei and 40% by loans in foreign currency.