A closer,albeit brief, look at monetary indicators in Romania

Those of you still watching the economic news in Romania these festive days, might have had a look at the monetary indicators released by NBR today. At least you might have heard that lending has been jump-started in November. Let’s have a closer look at the data.

The first graph I want you to see is the one showing M1 – narrow money supply and the one controlled by monetary policy – against M3. Odd isn’t it? M1 has had a drop in 2008 and never recovered since then. Yet financial sector extended credit. To whom and in which currency?

From the next graph one can see that the government and the corporate sector were the two beneficiaries of credit growth in since 2009. To be more precise government was responsible for 2009 and 2010 and the corporate sector for 2011. It is also obvious that the household sector is still struggling and almost no lending went that way. Also, if the next t couple of years will be as bad for the household sector government credit will be as large in nominal terms as household credit.

Finally here is the picture showing that the corporate sector still prefers to borrow in foreign currencies. Theoretically it could mean that it either makes extensive use of hedging instruments or that it does not believe in a weaker RON in future.  For the health of the corporate sector I hope is more the case of the former than the latter.








5 thoughts on “A closer,albeit brief, look at monetary indicators in Romania

  1. I tend to look at the M2-M1 indicator in order to see the privat+household market perception of things to come. If you have an abrupt increase in long term deposits despite low real interest rates, you know things are deteriorating. On the other hand, it’s nice to look at household indicators as well:

    Note that the only increase in lending is on the mortgage lending sector. One might thing that this is a good sign, but if you look at the numbers you will see roughly the same increase each year since 2008 (around 4K), and this is caused by…Prima casa. The other lending options for households have increased at an insufficient/sluggish rate.

    Oh yes…and credit growth on foreign currency loans, not EU, despite NBR’s spoken intentions.

  2. Florin,

    I am courious if in the third chart, coporate sector includes banks and financial institutions or not. It is a very interesting information showing the confidence (or lack of confidence) of Romanian private sector in Romanian Leu.

    You still deny the monetary cause of local inflation or not?

    A Happy New Year!

    1. @Cristian
      I use the official NBR data so it should include non-banking financial institutions along with all the other corporations.
      In the long run I firmly believe inflation is a monetary phenomenon, especially in Romania. But as M3 increase is mostly due to mortgages and EUR loans it is hard to find the relationship in the short term.
      The relationship is much better for M1 an prices via the exchange rate channel (see my note on Monetary Policy in 2012)

      Happy New Year and see you soon on our little internet show.

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