Last quarter: Banks cut interest rates for deposits by 2.5% on average

Interest rates paid by banks on deposits made by individuals dropped just as fast as they rose, as soon as the Central Bank began cutting the policy rate and issuing warnings for bankers that such passive interests are unsustainable.

This past month, most banks have made small but frequent interest rate cuts, which caused individual interest in deposits to drop.

In April, the largest interest rate for fixed maturity deposits was 15.25% per year, whereas the highest interest rate currently stands at 12.75%, meaning that interest rates dropped an average 2.5% over the course of three months.

What"s more, banks that avoided the interest race cut their interest rates as well. Banks that only offered 7.5% per year for deposits with longer maturities now only pay 6.5% per year.

Romania"s Central Bank made numerous operations of injecting liquidity into the market in the beginning of this year, both by REPO operations, and by cutting minimum required reserves and the policy rate, in order to encourage the cutting of interest rates for deposits. The ultimate goal of the Central Bank is to cut loan interest, but in order to achieve this it needs to cut passive interest rates.

The governor of the NBR, Mugur Isărescu recently said: "At 12% interest rate, banks are actually paying their customers 6%, for an inflation rate of 6%. It"s luxurious, to put it mildly, I can"t even tell how they can afford it".

What"s more, the Governor of the NBR warned banks that the Central Bank is watching them, and "market mechanisms will quickly punish these distortions".

In theory, passive interest rates should be lower than the policy rate, which currently stands at 9%.