Moreover, in June 2016-June 2017, the median value of a new housing loan continued to rise, standing 5 percent above that of outstanding housing exposures. This causes indebtedness to become more sensitive to interest rate changes, amplifying debtors’ vulnerability. It is deemed that both the tensions surrounding macroeconomic equilibria and the increase in household indebtedness are growing risks to the country’s financial stability, especially in the context of the changing global market sentiment towards emerging economies, as reflected by the risk premium. These developments can be counterbalanced by a stable and predictable domestic environment, but can also be heightened by a state of uncertainty caused by major, insufficiently prepared and explained changes in the public policy mix. Uncertainty delays investment and increases 6  the preference for liquidity – and the price for the preference for liquidity is the interest rate. When the external environment is uncertainty-ridden and is facing a cycle reversal, it is advisable that the domestic environment should not add to these uncertainties. The pursuit of fulfilling economic policy priorities should not jeopardise financial stability, which is a public good. Another identified systemic risk is the weak payment discipline economy-wide, which reflects in soft budget constraints in the private sector as well. This contributes to the deepening of vulnerabilities that may affect financial stability through inefficient resource allocation, the rise in non-performing loans, the distortion of market signals and the creation of quasi-broad money with negative effects on inflation.

Unemployment rate stayed on a downward track and employment rate was stuck to the uptrend (Figure 6). Nevertheless, these developments should be read considering the widening of the structural government deficit and the increase in the trade deficit, whereas inflation rate returned quickly into the upper half of the variation band of the target and the exchange rate of the leu against the euro depreciated slightly since the beginning of the year. At the same time, the interbank market rate rose at an accelerated pace in September, and stabilised thereafter, amid the pick-up in annual inflation rate and the consolidation in expectations of an adjustment in the monetary policy stance, coupled with the decline in the structural liquidity surplus under the simultaneous influence of the main autonomous liquidity factors, namely operations in the Treasury account and non-residents’ transactions on the local financial market. As for the banking sector, key financial and prudential indicators have further posted a robust performance. In the assessment conducted by the EBA, the indicators are in the lowrisk bucket in terms of capitalisation, coverage by provisions, profitability, and balance sheet structure; in the medium-risk bucket in terms of asset quality and operational efficiency; and in the high-risk bucket as regards restructuring measures (Figure 8). Solvency indicators continued to stand at adequate levels and the substantial capital reserves relative to prudential requirements provide a good capacity to absorb unexpected losses and resources to ensure lending to the real sector (Figure 10).