Romania has tried to stimulate lending, but it just isn’t working.
The government cut rates dramatically over the last few months, from 9% this time last year, to 6.25% today. The ROBOR rate, which is the local currency lending rate, has actually increased even though the government rate has remained low. ROBOR rose from 7% to 7.5% from May to June.
The Romanian national interest rate, unchanged as of June 30:
ROBOR rate increases indicate that banks are reducing their lending, even though the government has aggressively cut rates. “The only ones pressuring for it are the Romanian entrepreneurs, who are also the most dependent on the loans from banks,” according to Ziarul Financiar.
Sound familiar? There are some key differences between the economies of the U.S. and Romania, but nevertheless, the similarities are notable. American small businesses are desperate for lending from banks, but are unable to get it. This isn’t because the money isn’t out there. It is because of uncertainty over regulation and a deleveraging process that is ongoing.
Austerity has been a key driver of this lending pull back in Romania. The government recently cut public sector pay 25% and increased the VAT to 24%. The impact has been further worries in the country’s banking system, which has stymied interest in lending, according to Ziarul Financiar.
Individuals and the private sector in Romania are choosing to pay down debt, not because they don’t want to spend more money, but because that is there only choice in a market where lending is at a minimum.
The same deleveraging process is happening right now in the U.S. Revenues are not growing at companies, because they are cutting back on spending, paying down debt, and creating efficiencies rather than expanding.
Inflation could, potentially, speed up the process in Romania (and the U.S.). But that comes with its own problems.
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