Romania's National Bank (BNR) published on Thursday, May 2, the new benchmark interest rate to be used by banks to set the variable interest rates for consumer and mortgage loans extended to households (IRCC).

The central bank has calculated the new index, based on the money market transactions carried during the last quarter of 2018, at a value of 2.36%, local Hotnews.ro reported.

Under the provisions of the emergency ordinance (OUG) 114, local banks have to use the new benchmark, instead of the ROBOR quotation-based benchmark, for new loans. Existing debtors can also ask the banks to refinance their loans using the new benchmark index. However, it is still uncertain if such refinancing is possible for mortgage loans granted under the Prima Casa (First House) state-backed program.

The Government pushed the new methodology claiming that it would result in significantly lower interest rates paid by households. However, the benefits are not straightforward. Ziarul Financiar calculated that for a EUR 60,000 mortgage loan, assuming a 2 percentage point spread added by banks to the benchmark, the interest rate would drop from 5.37% on April 30 to 4.36% on May 2 while the monthly installment would drop from RON 1,590 to RON 1,420 (by RON 170, or just over 10%). Nonetheless, the base assumption is that the bank maintains the same spread, which is not mandatory.

The technicalities of IRCC calculations are more complex and leave the door open for IRCC rising above ROBOR at times when the money-market interest rates are declining. This is because of the five-month time lag: BNR reported on May 2 the average interest rate calculated for the money market deals in the last quarter of last year while ROBOR reflects more accurately current market conditions.

editor@romania-insider.com

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