OTP Bank Romania analysts : the political crisis and high inflation impose new growth of the interest rate

The OTP Bank Romania analysts consider that until the end of year there will be a new adjustment of monetary policy, as in 2022 the key reference will cross the threshold of 2% and the political crisis and high inflation impose new growth of the interest rate.     ‘According to the OTP Bank analysts, the increase of 0.25% of the monetary policy interest made by the National Bank of Romania is the first step in a series of necessary growth of the interest rates to balance the effects of the political crisis and the inflation growth. The increase of the key reference at 1.5% at the beginning of October by BNR is an adaptation to the conditions of the market and influence of the international trends. The recent signs which indicated this evolution where the growth of interbanking interest and the growing change of the curve of international yield which grew and the risk cost for Romanian assets’ the bank shows.   While the European prices for electricity continue to grow, the domestic political uncertainty deepened, being a risk for the local fiscal consolidation.    ‘Since the beginning of 2021, and especially since the summer of this year, many conditions have changed. The central banks started to evaluate more carefully a permanent growth of inflation, and the curve of the yield of the big economies started to move upwards. The higher rates in the US and the euro zone contribute to the increase of the risk premiums for assets on the emerging markets, which push the evolution of the interests in Romania and the region on an upward trend. Moreover, there are domestic factors which indicate a future strengthening of monetary regulation, the inflation getting to the level of 6.3% at the end of September, and the estimates indicate a slight continuation of this growth until December at least’ the OTP Bank analysts appreciate.   They consider that until the end of the year there will be a new adjustment of monetary policy, so that in 2022 the key interest passes the threshold of 2%.    ‘There are several reasons for which we expect growth of the rate in the future, but we have to remember that both the yield curves of the US and the euro zone have increased gradually, which leads to a growth of the financing costs for the emerging economies such as Romania’ they say.   Such growth makes it less possible that the appreciation of inflation be temporary. The logistic blockage and the high prices for electricity will keep the inflation at a higher level than the one estimated initially for next year as well. Then, at international level, there are expectations that the Federal Reserve start in November the introduction of regulation measures, while in December the ECB could reduce the acquisition of assets.   Similarly, the domestic factors indicate a higher interest rate.   At the end of September  inflation reached the level of 6.3% and the inflation rate at the end of the year could reach even 8%if a supplementary growth of the price of electricity for the user sis adopted, taking into consideration the evolution of the international market of gas.   Although the largest part of this growth does not reflect in the basic inflation, as it is caused by the higher prices for electricity, taking into consideration the strong economic recovery and the decent growth of salaries, there is the risk that expectations referring to inflation to grow, which could lead to an inflationist spiraling.   Finally, the risk cost for the local assets was fed by the domestic political uncertainty and the fiscal fragility, Romania having a structural deficit of almost 7%, probably the highest in the EU.   The increase of key interest for the adjustment and normality of the monetary policy will have during this first period a reduced effect on inflation, taking into consideration there was more of a reaction to the increase of interbanking interests. It will contribute to the keeping of a strong national currency, while it leads to the growth of interest rates for loans and deposits. Thus, the activity of saving will be stimulated and it will limit expenditure at general level, with effect of keeping the inflation under control.   Even so, the OTP Bank analysts appreciate that next year inflation will be lower due to the fact that the effect of growth of prices for electricity will be reduced until the second semester.   OTP Bank Romania, subsidiary of OTP Group is an integrated supplier and auto-financing of financial services. The bank has occupied the 9th position, depending on assets, in the ranking of bank players in Romania since December 2018.   OTP Group has over 70 years of activity in the financial sector of Central and Eastern Europe, while the subsidiary in Romania has accumulated 16 years of presence on the local market. The community of almost 40,000 employees serve daily almost 16.3 million clients in 11 countries.