On Friday, the National Bank raised the key rate by another 75 basis points, from 4.75% to 5.50%. This will be seen in an increase in ROBOR, the measure by which many of us pay bank rates. In a word, the rates for some loans will increase, which, in addition to inflation and rising energy bills, are causing more and more headaches.

Many economists had expected a 100 basis point hike, with the exception of BCR, which correctly predicted a hike in the BNR rate.

• See the press release of the BNR here

What does the NBR’s key interest rate hike mean for your money? First of all, as I said above, if you took a loan from a bank in lei with a variable interest rate linked to ROBOR, expect an increase in the rate you have to pay, a rate that in any case has increased significantly compared to you paying last year.. If you have deposits, you will get a better return (but which will still be well below the rate of inflation). If you have credit cards, they can suddenly go up in price. But let’s break them down one by one.

Consumers are already suffering from the rising cost of living, whether it’s the price of a full tank of fuel or a chicken in the supermarket

Now that BNR has become even more expensive, the cost of loans – whether for housing, for a car, or for a trip after all the years of the pandemic and restrictions – will increase.

The increase in interest rates by central banks (as it concerns not only the NBR) is connected with the world economic situation, which is much more difficult than it was just two years ago. A pandemic came that “shortened” supply chains, then the war in Ukraine and sanctions against Russia, which shook the energy markets. And continues to do so.

BNR is getting more expensive this year

So far, consumers are feeling the rise in inflation more strongly, but the consequences of the NBR’s decisions will be all the more pronounced as the central bank raises the key interest rate.

For banks, the BNR’s decision on Tuesday does not necessarily bring happiness. The more credit rates rise, the more likely it is that some loans will become non-performing, which hurts bankers who have to create financial reserves (provisions) at the NBR. If you also take into account that they will have to reward depositors better (that is, take extra money out of their pockets), neither banks nor consumers are happy with the decisions of the board chaired by Mugur Iserescu. And then, why did the NBR Central Committee increase the price of the lei?

What are reference interest rates?

According to the European Central Bank, interest rate benchmarks, also known as “reference interest rates”, “benchmark rates” or “benchmark rates”, underpin all types of financial contracts, such as mortgages, overdrafts and other more complex financial transactions. They play an important role in the financial and banking system, as well as the economy as a whole. But what exactly makes them so important? And for what reasons are they reforming now?

Reference interest rates are also used by private individuals and companies

For example, banks use them when issuing loans to private or corporate clients.

A bank may agree to lend money to a company at an agreed interest rate set at a certain base interest rate plus 2%, meaning the company will pay 2% interest on top of the current base rate. Therefore, the cost of borrowing increases if the base interest rate rises and decreases if the base interest rate falls. In this case, the reference interest rate can be a reliable, independent and relatively simple guide for all parties involved.

Companies may use reference interest rates to evaluate balance sheet positions; in other words, these ratios allow the accountant to more easily calculate what, in the end, is the value of the company (more precisely, the financial assets it owns).

Other uses of base interest rates include: calculating overdraft penalties on cash accounts, calculating interest on some retail deposits, and matching interest rates on mortgages and retail loans.

Many lei loans with a variable interest rate are tied to the ROBOR index, which represents the average interest rate at which banks lend money to each other. On Friday, the 3-month ROBOR was quoted at 8.12%, and the 6-month – 8.23.

The decision of the BNR will affect both credit rates and remuneration for bank deposits.

In the case of credit cards, the NBR’s decision on Friday will mean an increase in the interest charged by the bank for using the money. If you are the owner of such a card and have debts on it, it would be good to pay them off as soon as possible, because the more BNR increases the key interest from now on, the more you will suffer in the future.

Although BNR has made money more expensive by raising the base interest rate, this increase is not immediately passed on to the rates we have in the banks. Bank interest rates are usually updated quarterly depending on the bank to bank and the details of each loan agreement