Cristian Popa, a member of the Board of Directors of the National Bank of Romania (BNR), quoted by Bursa.ro, has attributed the recent rise in market interest rates to increased political uncertainty, prompting nervousness among Romania's international financiers. 

"The increase in interest rates in the market is a direct consequence of the significant increase in [the political] uncertainty and nervousness among the country's international financiers," Popa argued. 

He pointed to pre-existing macroeconomic imbalances, such as a high budget deficit and large current and commercial account deficits, as compounding factors exacerbating these pressures.

Popa highlighted that growing political uncertainty, amplified by the unexpected outcome of the first round of the presidential elections on November 24, has strained Romania's financial and monetary conditions. 

Specifically, the currency inflows have reversed into outflows, reflecting declining confidence in the Romanian market. Furthermore, a tighter interbank lending environment has emerged amidst broader uncertainty. As a result, increased risk perceptions among international investors have directly impacted domestic interest rates, pushing up the cost of borrowing.

The three-month ROBOR index, a benchmark for consumer loans in Romanian lei, rose to 5.87% on November 26, up from 5.81% in the previous session. Although the index remains below the 6.21% level recorded at the beginning of the year, its recent uptick reflects the growing market tensions. 

The ongoing electoral process and its unexpected developments have intensified volatility, extending uncertainty in financial markets. 

Popa emphasised that these political dynamics are superimposed on Romania's structural imbalances, which have long been flagged by the central bank. 
Without decisive policy interventions, these vulnerabilities may further erode investor confidence, leading to continued tightening of financial conditions.

As Romania navigates this period of heightened political and financial instability, the interplay between domestic policy decisions and international market sentiment will remain crucial. Policymakers face the challenge of restoring stability while addressing the structural economic imbalances that underpin these tensions.

iulian@romania-insider.com

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