Romania’s Prime Minister Mihai Tudose has blamed the central bank for the recent rise in money market interest rates, and said he will approach the monetary authority over the issue. 

Suggesting a more expansionary monetary policy to accommodate the government’s fiscal stimulus will certainly meet with opposition from the central bank, although the government might just be aiming to strengthen public support rather than expecting the bank to fall in with its request.

Speaking to journalists in Sucevita on September 29, Tudose said it was the central bank’s role to ensure that the Robor (Romanian Interbank Offer Rate) rates did not increase too far, Ziarul Financiar. 

The cost of three-month funds on the money market (Robor) hit 1.58% on September 29 after having hovered below 1% for the last couple of years. 

The issue of rising interest rates, driven by fundamentals (including fiscal slippage expectations) resulted in angry political rhetoric from both government and opposition ahead of the central bank’s October 3 monetary board meeting. 

By law, the government can send the finance minister to attend the monetary board meeting, Ziarul Financiar mentioned, implying that the executive could for the first time make use of this provision.

A combination of endogenous and exogenous factors have driven the cost of money toward levels that are more in line with fundamentals, after the quantitative easing abroad and excess resources at home maintained interest rates at very low levels in recent years. But the quality of the consumer and mortgage loans extended over the years of low interest rates might suddenly deteriorate after banks adjust loan interest rates to market benchmarks.

“I don’t want to think what will happen to low income borrowers when interest rates rise,” the head of the central bank’s financial stability department Eugen Radulescu said, quoted by profit.ro.

The indebtedness of low income households will rise from 65% of their income to 75% when the cost of money rises by 1pp-2pp, he commented. For consumer loans, the non-performing loan (NPL) ratio is already 14%, he added.

The central bank was widely expected to tighten the monetary policy on October 3 or at subsequent meetings by narrowing the interest rate band while keeping the key policy interest rate at 1.75%. Inflationary pressures have accumulated at a fast pace recently, supporting the rationale for such a move, after the government hiked fuel excises and the regulated energy prices were revised upward. 

As well as taking the central bank to task, Tudose also sought to throw blame onto the energy market regulator for the energy price hikes that entered force on October 1. The government has criticised ANRE for having allowed the (allegedly speculative) spot electricity price to pass through to end-user residential prices. However, the competition body concluded that there was no collusion among power generators.