The volume of outstanding one-month deposits and deposit certificates in the central bank's portfolio surged from RON14 billion in December 2004 to RON25 billion currently, which involves increasing costs that put a pressure on quasi-fiscal deficit, deputy governor Eugen Dijmarescu said yesterday during a conference in Bucharest. He claims that the high volume of funds placed by banks with the central bank stand for a wide discrepancy between the financing available on the market and the demand for financing. The lending interest rates for new loans, seen by Dijmarescu as "lower than the sterilization rate [8.5%]" reflects, among other indicators, the weak demand for financing – the deputy governor explained. Dijmarescu blamed the poor managerial ability and the lack of viable projects to be financed. The banks in their turn should be more aggressive in promoting new financing strategies, he added.

IntelliNews Comment:

Firstly, we see the interest rates charged by Romanian banks as moderately high, and in any case not under the sterilization rate [deposit rates are, indeed, below 8.5%], despite the massive drop over the last year. The lending rates for fresh local currency loans were 11%-15% last December, the last available aggregate statistics from central bank, to which add several healthy percentage points in management fees and project valuation.

Second, part of the funds drained by the central bank is foreign inflows attracted by the high interest rates paid by BNR under the circumstances of stable exchange rate. The EU funds, for which Dijmarescu recommended companies to hire foreign managers for handling, were not much of a problem with regard to BoP because they flow into the country only at the moment the expenditures are scheduled. Sticking with the central bank's complaint about managers' inability to drain more funds, this should not came as a surprise considering the high interest rates that crowd out investment projects that yield profits seen as decent in the EU but loss-making in a high interest rate environment.