A war waged thousands of kilometers away will increase Romanians' bank rates in a few months, warns an expert. There is also a “lucky” category
Starting this summer, we could see interest rate increases that incorporate the war in Iran, Dragoș Cabat, member of the board of CFA Romania, the association of investment professionals, said on Wednesday.
On Wednesday, Cabat presented a study carried out together with Alexandra Smedoiu, vice-president of CFA Romania, on how ROBOR and IRCC are formed. The two say that it is a coincidence that this study was presented shortly after the Competition Council presented the conclusions of an investigation on ROBOR, Cabat and Smedoiu stating that they have been working on this study for a long time.
According to the document, the main factors that determine the evolution of interest rates are: expectations regarding inflation, the evolution of the economy and the exchange rate of the national currency, the level of inflation and the monetary policy of the National Bank of Romania (BNR), as well as international factors with a major impact
The transmission mechanism is 3-6 months
“As for the war in Iran, expectations are only now being formed because the war is still recent. What we are seeing at the moment is a clear pressure on both inflation – we are already seeing it in the countries of Eastern Europe. Almost all of them now have inflation above 5, some above 6%, we are at almost 11%. So through inflation, this will immediately go into interest rates. Now the transmission period starts from 6-12 months. My personal opinion is that the transmission mechanism is sometimes even shorter, of 3-6 months”, explains Cabat.
ROBOR – Romanian Interbank Offer Rate – represents the reference rate at which participating banks are willing to place deposits in lei to other banks. In other words, it is the “selling” interest on money in the interbank market.
“The transmission of this war in the economy is done in the following way: fuel becomes more expensive, then transport, then food, after which inflation increases and interest rates rise. Well, this does not mean that the war is not transferred to other areas of the economy. But from my point of view it is important to see when these things propagate. Or what is the timing”, explained in a discussion with HotNews the chief economist of BRD, Florian Libocor.
On fuel, the impact is visible in a few days. For food, it's probably up to two months. And on interest, by inflation, we are talking about one quarter to two quarters; 6-7 months, he says.
“Repayment pressures will be felt, because there will be higher rates and higher interest rates. We are talking about the variable ones. Those with fixed interest rates are the lucky ones,” Libocor explained
ROBOR is more transparent than EURIBOR, suggest the authors of the study
The document mentions in passing that the ROBOR platform allows all the banks in the panel to see the quotes of the other banks in real time, and the quotes are firm (ie the banks are bound to trade at them if someone asks them in the first 15 minutes after 11 o'clock).
EURIBOR, on the other hand, is calculated ex-post, based on transactions already carried out, and banks do not see competitors' quotes in real time.
The study indirectly suggests that ROBOR is actually harder to manipulate than EURIBOR, the eurozone's reference system.
Read the full study here
