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UPDATE 1-Romania cbank rejects sweeping solutions to franc's rise
January 30, 2015 / 11:29 AM / 3 years ago

UPDATE 1-Romania cbank rejects sweeping solutions to franc's rise

(Adds details, background)

By Luiza Ilie

BUCHAREST, Jan 30 (Reuters) - Romania’s central bank rejected calls on Friday for a broad solution to cushioning borrowers from the sharp rise in the Swiss franc, saying proposals such as intervening to strengthen the leu currency would hurt economic growth.

The remarks by Central Bank Governor Mugur Isarescu appeared designed to caution lawmakers not to hurtle into taking unrealistic measures or put pressure on the central bank to act, after the franc’s sharp appreciation in January.

Isarescu also said that now was a good time for banks to offer Romanian holders of franc loans the chance to convert them to the leu at the current market rates, given the country’s low inflation and low interest rates.

Hundreds of thousands of people across Central and Eastern Europe took out home loans denominated in Swiss francs in the early 2000s despite warnings from economists, attracted by lower interest rates than those offered in local currencies.

Mortgage payments are set to soar since the Swiss central bank abruptly removed the cap on the currency earlier in January, although the impact is expected to be lower in Romania than in some of its wealthier neighbours.

The Romanian government has proposed extending an existing debt relief scheme launched last year -- which helps lower monthly payments for the country’s lowest earners -- in order to cushion borrowers from the franc’s surge.

Individual lawmakers have also put forward solutions such as letting borrowers convert their loans at the exchange rate level at the time they took out the loans. The latter would cause banks to lose 5.7 billion lei ($1.46 billion) and mean that three or four banks would need substantial capital infusions, Isarescu said.

“Most outside shocks are like earthquakes, meaning no one knows they are coming, which makes them dangerous,” Isarescu said. “The best approach is to let things settle down. It’s not good to work with strong emotions and in haste.” ($1 = 3.9147 lei) (Writing by Matthias Williams Editing by Jeremy Gaunt.Editing by Jeremy Gaunt)

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