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Raiffeisen Bank: inflation to reach 4 percent in mid-2018


There's an obvious upward trend of the Romanian interbank offered rate ROBOR, and the indicator might surpass 2 percent when inflation reaches 4 percent in mid-2018, said Raiffeisen Bank chief economist and Fiscal Council president Ionut Dumitru. 

"ROBOR's upward trend was very clear, but the recent build-up of events and the very rapid growth are the effect of short-term factors that have sharpened this trend," said Raiffeisen Bank's chief economist. 

Among the responsible short-term factors Dumitru mentions dividend payments at state-owned companies, particularly for July, August and September, which will total over 5 billion lei in 2017; the Finance Ministry's draining liquidity from the market at an average rate of over two billion lei a month this summer; the exchange rate-interest balance amid pressure on the exchange rate. 

Interest rates on loans in domestic lei are calculated depending on the ROBOR. In the Romanian banking system, 60 percent of the loans are in lei, and in the case of Raiffeisen Bank 75 percent of the loans in lei carry a floating interest linked to ROBOR. 

"Romania's ROBOR has always been quite volatile, because the National Bank of Romania (BNR) has always had a preference for exchange rate stability, for objective reasons - the very high indebtedness in foreign currency, since at a certain time 65 percent of the loans were in foreign currency. This incurs a cost, when you have a liberalized capital account and free movement of capital, you cannot have both a stable exchange rate and stable interest rates. One must choose one of them. There was a recent period of relative calm, with very low interest rates all over the world and massive liquidity injections. In Romania too we had an abundance of liquidity, an excess in the money market. BNR's deposit facility had reached 20 billion lei. But quite predictable, these deposits banks have at BNR started to decrease. They reached five billion lei in August, then two billion in September, there will probably be a deficit in October, meaning that the banks had nothing to place with BNR, on the contrary they ended up in a deficit position," Ionut Dumitru said. 

Inflation should be the fundamental factor driving ROBOR's direction and movement and in Romania inflation has stayed in the negative area for some time due to the VAT reduction, but it is now rising rapidly.