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Isarescu: Don't expect IRCC to work miracles and do everyone justice; ROBOR unjustly vilified


Because of its role as loan benchmark, the interbank offered rate ROBOR has been vilified and you should not expect the Consumer Credit Reference Index (IRCC) to work miracles and do everyone justice, governor of the National Bank of Romania (BNR) Mugur Isarescu said in a press briefing on Wednesday.

"Because of its role as loan indicator, the ROBOR has been simply vilified. Any indicator has value as long as it is credible, but if you tread on it and punch it all the time, it loses its credibility. There are many factors at play. As the inflation rate tends to rise and the public perceives this, due to the time lag, the three-month ROBOR will probably be slightly higher than the IRCC, but not much and this has already been proven. On the other hand, if inflation goes down, and the public perceives this, it's highly likely that the ROBOR will be smaller than the IRCC. We'll see. We cannot say this precisely, because there are many factors that impact this area, including liquidity control. Don't expect this IRCC to come as a miracle and do everyone justice, it's an index that adds to an interest margin banks operate with and which is set by each individual bank," Isarescu said.

The BNR official added that the debate on the ROBOR and the IRCC could move to the background, as lending moves toward fixed interest rates.

"I looked at the latest figures and more than 50 percent of loans in Romania are now at fixed rate. In one year we may see this has been much ado about nothing. If lending moves toward fixed interest rates, all this debate on the ROBOR and the IRCC will be sent to the background. We may see a dominance of fixed-rate loans," the BNR governor explained.

As far as the consumer price index is concerned, Isarescu pointed out that if the agricultural year is good, the market will be sufficiently supplied with volatile products, and prices for vegetables and fruits may drop.

"By strengthening liquidity control, we succeeded in April (yet to a lesser extent in May, because of objective reasons) to keep interest rates on the money market above 3.3 pct. By strengthening the control of the monetary policy we will try to return to this situation even if interest rates are lower today for objective reasons. Such a strengthening of monetary policy has an impact, and we see this also for loans in lei, but the relapse in inflation is not caused by the monetary policy. We have an impact of revenues and there's a significant impact of the volatile prices. As a rule, volatile prices are reversible. (...) If the agricultural year is good, the market will be sufficiently supplied with products. Vegetable and fruit prices might also decrease and consequently we could see a trend reversal. The same applies for crude oil, we cannot yet know this," Mugur Isarescu said.

He added that the National Bank is determined to keep things under control "even in this electoral year with skittish public rhetoric."

"This is no easy year. Nobody has it easy in this world, just look at what happens in Europe and in America," Isarescu said.

The BNR Board of Directors decided on Wednesday to keep the key interest rate at 2.50 pct per annum, and also to maintain the deposit facility rate at 1.50 pct per annum and the lending facility rate at 3.50 pct. The minimum reserve requirement ratios on both leu- and foreign currency-denominated liabilities of credit institutions were kept unchanged.