Non-governmental Credit Accelerates in June
In June, non-governmental credit saw the highest monthly growth rate in the past two years and the highest annual growth in the last 13 months. This increase in credit comes as inflation decreases, leading to an increase in real interest rates.
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Banks Increase Private Credit
Banks raised the balance of private loans by 7.2 billion lei in June, or 1.8%, surpassing the 400 billion lei mark in outstanding loans. In nominal terms, this is one of the largest monthly increases in lending in recent years. It is also the highest percentage increase since June 2022, or since November 2021 when adjusted for inflation.
Positive Trends in Credit and Inflation
In comparison to June 2023, credit has increased by 6.7% in nominal terms, the highest rate since May 2023. Credit in local currency has grown by 8.7%, while foreign currency credit, previously preferred by companies, has increased by 2.7%.
Rising Inflation Rates
Inflation has been on the rise since the beginning of 2021 and accelerated significantly in the spring of 2022. Due to a liquidity deficit and the National Bank of Romania increasing interest rates, banks have raised loan interest rates. As a result, a decline started in the autumn of 2022 – the annual rate of 15-17% dropped to 4-5% – but it seems to be reversing now.
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Furthermore, adjusted for inflation, credit has been contracting for 19 consecutive months between October 2022 and April 2024. In April (+0.5%) and June (+1.8%), we see the first real annual increases in credit after this period of contraction.
The Impact of Inflation on Loan Rates
As inflation has dropped from double digits to around 5% in recent months, the real interest rate on loans has become positive and is increasing, standing at about 3% in May compared to -0.7% in May 2023. This means that loans have become more expensive in real terms, even though nominal interest rates have decreased in some cases – as was the case with loans for companies and consumer loans.
Changes in Intermediary Money Supply
The intermediary money supply (M2), which includes time deposits, current account deposits, and cash in circulation, decreased by around 5 billion lei in June compared to May, to about 585 billion lei. On the other hand, the annual growth rate remained relatively high at 9.7%, but below the 10-11% levels of the previous 9 months. This trend comes as a result of a 1.2% decrease in deposits to 585.4 billion lei in June compared to the previous month.
Monetary Trends in Romania
Over the past year, the amount of cash in circulation in Romania has increased by 9.5%, reaching around 116.5 billion lei. Meanwhile, overnight deposits have grown by 6%, totaling almost 298 million lei. This growth has halted the previous trend of money moving out of current accounts, as individuals and businesses may have been less inclined to transfer their resources to term deposits, where interest rates have decreased due to lower inflation rates.
In real terms, the money supply has increased by 4.5% over the last year, while deposits have risen by 4.6%. Despite the challenges posed by fluctuating interest rates and inflation, Romania remains the largest exporter of cereals in the European Union, maintaining an annual growth rate of around 10%.
