Interest rates on deposits could drop below key interest by year-end deposits

Interest rates on deposits will continue their downward trend, and should drop below the benchmark rate by the end of this year, according to analysts contacted by Business Standard.

The National Bank of Romania (BNR) cut the key rate in August to an annual 8.5 percent from nine percent, in line with expectations, but surprised the market by reducing the cash reserve ratio (CRR) for foreign currency-denominated liabilities to 30 percent, which will allow banks to have more liquidity.

Following this decision, the benchmark rate returned to the level in January-February 2008, when BNR was applying a strict monetary policy. Since the beginning of 2009, BNR cut the key rate by 1.75 percentage points, to an annual 8.5 percent from 10.25 percent.

Ionut Dumitru, Head of the Analysis Department of Raiffeisen Bank, said that the very high level of interest rates on deposits, observed at the beginning of this year, was "entirely abnormal," considering that these returns should be "near or below the benchmark rate."

"The population's capacity to save money cannot be very high, in this time of crisis," Dumitru said, adding that banks are still offering attractive returns, far above the inflation rate.

money.ro