Romania's central bank to “steer measures” towards sustainable decline in interest rates

Romania’s National Bank (BNR), in a press statement on June 18, pledged to “steer measures towards providing the necessary liquidity, while safeguarding financial stability and maintaining a sustainable trend of gradual decline in interest rates.”

The measures would be calibrated not to deter domestic saving, which is the primary financing source of the real economy and the budgetary sector.

In other words, BNR plans to keep financing the Government directly and indirectly, but this can be done only to a certain extent since excessive liquidity would put at risk the household’ savings - that should be the natural source of financing for the Government and companies.

The intensity of the liquidity injection carried by BNR, in line with the decision announced on March 20, has decreased compared to the first stage of the intervention, judging from the data provided by the central bank. Specifically, the stock of funds released under repo operations has decreased to an average of RON 7 billion (EUR 1.44 bln), the average calculated for May 15 to June 15 period, compared to RON 13.6 bln in April (EUR 2.8 bln) and RON 9 bln (EUR 1.85 bln) in May. Separately, the stock of Government debt accumulated by BNR as of June 5 reached RON 3.8 bln (EUR 0.78 bln), with most of it (RON 3.5 bln) collected in April-May.

BNR blames the still high borrowing costs [paid by Romania for the Eurobonds] compared to Czechia, Poland or Hungary, on the twin deficits: the current account and budget deficit.

“Such prevailing realities put continued upward pressure on interest rates on Romania’s borrowings. The ratings of credit agencies, the public assessments of the European Commission and the European Central Bank also contribute to this distinction and cannot be disregarded,” the central bank’s press release reads.

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