IRCC-related loan rates are falling from today. Even more decrease for those calculated according to ROBOR

As of today, banks are updating the rates on loans in lei with variable interest, as a result of the decrease in the reference index for consumer loans (IRCC). ROBOR benchmarks fell in the first quarter of the year and are moving even closer to IRCC. Profit.ro explains below chow much is the decrease of IRCC and ROBOR in a rate.

Romanians with loans in lei linked to IRCC benefit from today the first reduction of the indicator, after three quarters of slight growth. Concrete, the index drops from 5.97% to 5.9%, a level valid until the end of June. The data are calculated on the basis of the average interest rates on interbank transactions from October to December 2023. The IRCC, as a result of the way it was defined in the law, is applied with a delay of 6 months from the collection of the first value in the daily series and with a of 3 months from the collection of the last value.

We also know what the valid IRCC value will be from July 1 to September 30: 5.86%. This is calculated based on daily data from January-March of the current year.

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The interest remains below the 6% level of the overnight deposit facility of the central bank, which in the last year and a half was the main tool of the NBR, this is the rate at which the very large excess of liquidity in the banking market is sterilized.

3-Month ROBOR Daily Average Drops in Q1 2024 to 6.11%from 6.31% in the last quarter of 2023, respectively 7.93% in the last quarter of 2022. Average 6-month ROBOR dropped to 6.14%, from 6.38%respectively 8.1%, in the same interval.

ROBOR remains the reference for most loans in lei with a variable rate (especially those of Prima Casă) granted before May 2019, when IRCC became the mandatory reference, and is still relevant for loans granted to companies.

Banks do not have an obligation to apply ROBOR in a particular way, but only to periodically update the reference. They may choose to take the ROBOR value from a specific date or average it over a specific period, but there is no uniform practice – in contrast, IRCC applies equally to all banks.

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The decrease in ROBOR can be explained both by the large surplus of liquidity and by the decrease in inflation, expectations of future inflation, and expectations that the NBR will reduce the key interest rate in the coming period.

Analysts expect the central bank to make its first downward move in the key rate at the May meeting, a drop of 0.25 percentage points from the current level of 7%, set since January 2023.

Throughout this interval, with two exceptions, the inflation rate was higher than the key interest rate of the NBR, but on a downward trend: from 15% in January 2023, to 6.6% in December 2023, then increasing to 7 .4% in January this year, followed by a slight decrease to 7.2% in February. Inflation was, however, consistently higher than the relevant lending facility rate, showing that monetary conditions were still loose and even looser than the key rate indicates.

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There is so much money in the market that does not find a counterpart in an investment in assets (loans, bonds) that banks almost no longer need to lend to each other. In the last two months, there were 10 days in which no interbank transaction was made, an unprecedented situation.

The spread between ROBOR and IRCC narrowed to 0.25 pp in the first quarter, from 0.41 pp in Q4 2023, the narrowest level since Q2 2020, and below the historical average of 0.6 pp.

Those who have made the switch from ROBOR to IRCC with the retention of the contract margin in the past years are still on the winning side, even if it is eroding, after the very high descent of ROBOR. The closer the reference change was made to the beginning of the inflationary period, the greater the gains.

How much is the decrease in IRCC and ROBOR in a rate

For a loan of 210,000 lei for 300 months, granted with a margin of 2.03 percentage points based on ROBOR at 3 months, respectively 2.5% based on IRCC, from April 1 we have the following hypothetical changes:

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The loan rate with variable interest after ROBOR drops to 1,640 lei, from 1,668 lei, after reaching 1,900 lei at the beginning of 2023.

The credit rate according to IRCC drops to 1,677 lei, from 1,687 lei, and from September 1 it drops to 1,670 lei.

The interest margins were chosen so that the two loans have the same interest at origination, in 2019. Even though in the last two quarters, respectively in the next quarter and most probably also in the third quarter the loan rate linked to ROBOR was more small, overall, if we calculate from the beginning of 2022, when inflation exploded, the total payments for the loan with ROBOR were about 4,000 lei higher than for the one with IRCC as a reference.

Errata: In an initial version, the article stated the IRCC level for Q2 2024 at 5.8%, instead of 5.9%.