The ROBOR index, on which loans in lei with variable interest depend, rose rapidly along with the increase in the interest rate of the BNR monetary policy. Iserescu drew their attention to the fact that they had jumped ROBOR, after which the Competition Council, which is investigating a possible deal between the banks, came on the phone. Coincidence or not, ROBOR started to fall. That’s right, only temporarily.

The evolution of ROBOR for 6 months from 2019 to Friday, November 11 looks like this:

What awaits us next?

Ciprian Dascalou, BCR Chief Economist: “We await the governor’s message from Monday’s press conference for ‘prospective guidance,'”

Taking into account expectations for future central bank measures in the region, especially in Poland, Dascalu says that the base-case scenario for the key rate hike cycle is also over in Romania, especially if the inflation rate no longer surprises against expectations in the coming months, he said. . “However, says Daskalu, it is difficult to believe that we will get a clear message that the cycle of tightening monetary conditions is over, given the significant uncertainty surrounding any macro forecast in the current context.”

“An increase in the interest rate of the NBR’s monetary policy at the next meeting on January 10 by 25 basis points is a scenario for consideration, but with a lower probability of implementation than the baseline. This would not significantly change monetary conditions, but would rather serve as a signal to continue the fight against inflation. The recent evolution of the EUR/RON exchange rate somewhat restrains the need to raise interest rates,” says Ciprian Daskalou.

We see ROBOR 6M in the 8-9% range in the next two quarters, adds BCR Chief Economist. The evolution of the exchange rate will play an important role in the BNR’s liquidity management policy and, implicitly, in interest rates on the interbank market.

Adrian Codirlashu, CFA Romania: “What could lead to an increase in the interest rate in lei is the continuation of aggressive actions by the Fed

I think there is a possibility that this rate of monetary policy will be the maximum for this hike cycle, he explains Adrian Codirlashu, Vice President of CFA Romania. In his opinion, there are two reasons to confirm this hypothesis:

“Compared to the region (Poland, Czech Republic), the monetary policy interest rate in Romania is similar to that in Poland and the Czech Republic (which have slightly higher inflation rates than Romania). Since September (at the last 3 meetings), the central bank of Poland has kept the interest rate at 6.75%, the current inflation rate is 17.9%. Since July, the central bank of the Czech Republic has kept the monetary policy interest rate at 7%, and inflation in September reached 18% (in October, the inflation rate decreased to 15.1%). Thus, by maintaining the monetary policy interest rate at this level, the impact on the EURRON exchange rate, which is also used as an anti-inflationary anchor, is neutral,” Kodirlasu explains the first argument.

The second reason would be that the inflation rate in Romania is showing signs of reaching its peak and is likely to show a downward trend from next year. In addition, economic growth will slow down, the economist says, which is a deflationary factor. Another factor of deflation is the price of methane gas, which has fallen sharply in the EU, and also led to a decrease in the price of electricity.

“What could lead to an increase in the lei interest rate is the continuation of an aggressive Fed, BNR even mentions the Fed in a press release related to the monetary policy decision, drawing attention to the Fed’s decision. But this is also setting the stage for lower interest rate growth in the US dollar, given the latest US inflation data (both headline and core inflation fell more than expected in October).

Under these conditions, probably also in the case of ROBOR, it is quite possible that the maximum value has already been reached, and therefore the trend will be very little downward (given the assumption of BNR, in the future, strict liquidity controls). For example, for ROBOIR 3M, average expectations according to the latest CFA Romania study are around 7.4% for September 2023. Under these conditions, ROBOR will also fall below 8% in 6 months.

However, uncertainty remains high, given the war in Ukraine, Russia’s escalation, for example, the termination of grain export opportunities from Ukraine, could again put pressure on food prices and, implicitly, on inflation. As for methane and oil, I don’t think that Russia has the ability to influence prices in the EU through supplies,” Adrian Codirlasu also notes.

The first quarter of 2023 may see even more growth (not 10%)

According to another banker, by raising just 50 basis points, the NBR is signaling that it is nearing the end of its rate hike cycle, but at the same time it is also leaving the door open for more hikes in the near future should you need them.

“There are still many uncertainties. Therefore, it does not appear that the BNR wants to follow the same strategy as other central banks in the region, i.e. faster hikes followed by pauses. Therefore, it is quite possible to see a new hike at the monetary policy meeting in January,” the quoted banker explains.

As for interest rates on the interbank market, we see that overnight rates are practically close to the level of the deposit line. Longer repayment periods also gradually affect. So for now, the trend looks more like a slight downward trend until the end of 2022.

What happens in 2023 largely depends on a number of factors, such as: e, the dynamics of energy prices, the dynamics of inflation and unemployment in the US, where the debate about inflation is not so much about energy, but about the amount of money in the economy and the situation on the labor market.

“In conclusion, the numbers we’re working with for 2023 suggest we’re starting the year with interest rates similar to what we have now. Then in the first quarter of 2023, we may see some more growth (not quite up to 10%), but we estimate that we will end 2023 below the current level,” the banker is quoted as saying.

An exaggerated increase in ROBOR will hurt everyone

An increase in ROBOR TO 10% will bring misery to all. Borrowers will see their rates rise significantly and some will be unable to pay (whether they are on ROBOR or IRCC). Banks would suffer as they would see a rise in defaults, which would force them to give money to the NBR (in the form of reserves) and bank managers would have to give an explanation to the Centre.

For its part, the BNR will watch the deterioration of banking performance, while representatives of the Supervision will go to the line in alarm to see what needs to be done to solve the problem.

Case with ROBOR 10%

Example with ROBOR 3M rate at 1%: Let’s say that the person who borrowed in September 2017 paid the bank a contribution of 1,000 lei (400 lei as the loan balance + 600 lei interest). Of the 600 lei that was interest, 500 lei was the bank’s margin and 100 lei related to the ROBOR 3M index (which we found was quoted at 1% at the time).

Example with ROBOR 3M quoted at 10%: if we keep the above example but apply the increase in the reference index, the person in question would have to pay all 400 lei of the loan balance + 500 lei of the bank’s margin (which remains the same). compared to the example above ) + 1000 lei due to 10% ROBOR. Thus, the monthly rate reaches 1,900 lei, almost twice as high as the version presented earlier, for the same loan, with a high ROBOR value (Source of calculations)

How ROBOR is calculated

The reference interest rates of the interbank money market ROBID/ROBOR are calculated daily by Reuters as the arithmetic average of the interest rates displayed by a number of 10 commercial banks selected by the National Bank of Ukraine according to more complex criteria. The list of 10 banks is periodically updated.

The list of 10 participants in the ROBID/ROBOR interbank money market reference interest rate calculation is public, and the quotes displayed by each participant are available on the RBOR1 and RBOR2 pages of the Reuters system. To calculate ROBID/ROBOR, quotes from participating banks are used, displayed at 15-minute intervals until 11:00 a.m. (Romanian time).

Calculation date – the date of the day on which reference rates for the overnight period (O/N) were calculated; next business day date for tomorrow/next maturity (Y/N), respectively two business days (spot) for all other maturities

As for the maximum allowed margin between the quotes displayed for ROBOR/ROBID calculation, it is 0.50 percentage points for O/N, 1 week, 1 month, 3 months and 0.75 percentage points for 6 months respectively. Nine months.

See here the full resolution of the NBR on the calculation of ROBOR