The key policy rate and credit : it is complicated

Since 2013 every rate decision is used by the team of communicators at the NBR to show that the central bank has done its part. It has lowered the key policy and now it is up to the banks to credit the economy. But this is not the entire story. The key policy rate is largely irrelevant for the real economy and for the credit dynamic. More important is how the NBR is managing the liquidity in the money market. As long as the central bank will deliver only short term liquidity to the money market in order to control the FX rate, the credit market which needs long term liquidity will not take off. Especially since the long term funding that banks used from their headquarters has been for the most part repatriated.

Thus, we should take with a large grain of salt each message from the BNR that points to the relationship between key rate and loans denominated in RON.



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