When they gathered on Tuesday in the Council Chamber in the BNR Palace, the 9 members of the Board of Directors had in mind decisions on monetary policy. Earlier, they attended a monetary policy meeting where they discussed economic analysis with members of the Monetary Policy Committee (MPC) and several other directors.

Dorina Antokhi, who heads the Monetary Policy Department, presented several documents to the 9 members of the BNR State Council. Documents in which the progress of the economy was described in numbers from a macro- and microeconomic point of view. However, the most important document is the one that presents the 9 scenarios for the monetary policy decision they are going to make.

The monetary policy committee consists of 10 members and is headed by the governor of the BNR

There are usually 3 scenarios, each with their own advantages and disadvantages. What will be the consequences of keeping the key rate on hold or what will happen if the decision is made to raise the key rate by 25 basis points (or lower it). 9 listen to the department head’s explanation and take notes. Then they sit and analyze.

As they climb the stairs to the elegant Boardroom with Louis XVI furniture commissioned from Paris, the 9 consider which of the proposed scenarios would be best for the economy.

The meeting of the Board of Directors headed by the Governor begins in the hall. They discuss the analyzes they have met 9. Sometimes Iserescu presents his point of view from the beginning, but more often than not he saves it for the end of the debate. Each member of the Central Committee motivates his version of one of the scenario options proposed by the CFM. And now it’s finally time to vote. Yesterday it was voted to keep the interest rate of the monetary policy at the level of 7%. As expected by all economic analysts.

BCR: We see the key rate remaining at 7% until 2023.

There is not much comment on the BNR communiqué, a BCR commentary published shortly after the monetary policy decision was published shows. There is no change in the inflation forecast: “annual inflation is likely to accelerate its decline in the coming months in line with the latest medium-term forecast”, “while the balance of supply-side risks is slightly upward at present.” Economic growth was better than expected.

We see that the key rate will remain at the level of 7% until 2023. Liquidity management, the NBR’s preferred monetary policy tool, is likely to be heavily used in the coming quarters, depending on the movement of the EUR/RON exchange rate and future inflation data

What about key interests? How does it work for the economy?

Indicative interest rates, also known as “reference interest rates”, “benchmark rates” or “base rates”, are interest rates that are updated regularly and are publicly available. They are a useful basis for all types of financial contracts, such as mortgages, overdrafts and other more complex financial transactions, the ECB says

Estimated rates reflect the cost of borrowing in different markets. For example, they may reflect the costs that banks incur to borrow from each other or to obtain funds from other sources, such as pension funds, insurance companies and money market funds.

Thus, debts 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?

Why are reference interest rates important?

Reference interest rates are widely used by individuals and organizations throughout the economic system.

For example, banks use them when they provide loans to private or corporate customers.

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 that the company will pay interest at 2% above 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, banks and other organizations may also use reference interest rates to evaluate balance sheet positions; in other words, these ratios allow the accountant to more easily calculate what the companies (or rather, the financial assets they hold) are ultimately worth.

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

Reference interest rates help central banks to perform their functions

Base interest rates can also support the activities of central banks. The NBR, for example, helps them in their activities to maintain price stability.

If the base interest rate accurately reflects the rates at which banks make and lend, it can help us better understand the functioning of financial markets and the availability of money.

If you know how easily banks get access to funds, you can estimate how quickly these banks will be able to transfer funds in the form of loans to companies and the population. And all this is ultimately reflected in the price level.