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BNR's Isarescu: Nothing wrong with ROBOR; I can guarantee there is no mishandling it

Inquam Photos / Octav Ganea
isarescu

There is nothing wrong with the ROBOR, the Romanian Interbank Offer Rate, and there is no mishandling it or it slipping from the real level of the market, Governor of the National Bank of Romania (BNR) Mugur Isarescu said on Tuesday.

He was asked if the half-hour morning quoted formula is the best formula for calculating the interest rates, and whether or not when trade is subsequently done below the quote there is an interest of banks excessively profiting of their customers.

"Being interbank only, banks are fighting for a hundredth of a percentage point, which I can swear to and verifications can confirm. So they can vary around the displayed quotes, but they are fighting for hundredths of a percentage point (...) The idea that they act together in a cartel, as I told you, would be when they agree on 3.50pct interest, but no more, I have heard someone claiming interest is going to be 10pct. At 3.5pct, if someone goes to borrow at 4pct, Mr. Cinteza calls him or her immediately and tells that he or she endangers the stability of the system and ushers in panic to the market. So, 3.5pct is the highest it can go. So the banks cannot collude," said Isarescu.

According to him, the confusion about ROBOR results from the fact that weekly figures are compared with 3, 6 and 12-month figures, and the differences are very high.

"We do not upset the ROBOR. There is nothing wrong with the ROBOR, and I can guarantee there is no mishandling it. There is no deviation of ROBOR from the real level of the market. The market works very well. Evidence that the market works very well relates to the stability of the exchange rates and the interest rate moves. The rest is really distortion, but media distortions, and then the question is why the interest rates are tied to the 3M rate. As far as I remember, the decision was made in 2010, when that rate was considered to be the most stable. It does not show the variations that interest shows in a week's time, or a day's time, which over the last three-four weeks, has gone from 1.50 to 3.50pct," Isarescu explained.

"ROBOR is an interbank money market index. The interbank money market is made up of banks only, so it is made up of banks that have accounts opened with the National Bank of Romania; these banks are not many, they are about 40. Let's say 40 for the sake of simplification. The liquidity supply of the Romanian economy, including the Treasury, is performed on this interbank market and through those banks, with the total of the accounts at the level of the economy exceeding, say, one trillion. (...) There are no accounts opened by individuals with the National Bank, and even we, the staff, we get our money through banks. For your understanding, what is called the supply of liquidity or cash to the Romanian economy is done on this interbank market," said Isarescu.

"The money market is only between banks, which is why it is called the interbank money market. Since it is only between banks, this ROBOR or the interest at which the banks make transactions is the outcome of an agreement between the banks. Agreement means the same as you going to a store and buying a product understanding what the price of the product is; you accept it, pay it and shake hands with the vendor," said Isarescu.

He added that there are two types of agreements and that only cartel agreement is prohibited.

He also explained why BNR decided to bring its entire administration board for testimonies.

"I have come with my colleagues from the administration board because I noticed that the public is slightly confused. It is believed that the National Bank is run by one person, but we have a collective leadership: the governor, the first deputy governor, two deputy governors and five members of the administration board, and responsibility for the decisions made lies with the entire board. That is why we are all here, not to impress, but to comply with the law that governs us," Isarescu said.

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