Unlike last year, now the Finance Ministry doesn’t have to borrow a lot and at any cost, because it has a significant liquidity buffer, of EUR5 billion and RON7 billion.
Already in the past two months the Treasury has been borrowing less than planned.
The Finance Ministry on Monday sold T-bills at an average yield of 5.29% a year, more than the yield it paid in April and May for bills with similar maturity.
As financing costs rose, the Treasury only attracted 506.8 million lei, half the planned amount. A similar situation occurred last week, when the Finance Ministry sold bonds with a two-year maturity and a yield of 5.73%, up from the May level, of 5.53%.
There are several factors behind the rise of government bond yields, says Melania Hancila, chief-economist of Volksbank: “The rise of ROBID/ROBOR interest rates, as a result of indirect forex interventions of the Romanian central bank – BNR sterilized lei by selling euros. Another factor is the rise of CDS levels as a result of the deepening of the debt crisis and because the central bank temporarily suspended its monetary easing policy.”
Romania’s CDS levels (the cost of insuring the country’s debt against the risk of default) neared 500 basis points after in the first few months of the year it had fallen to 300 basis points.
May was one of the most difficult months for the Romanian currency. Leu’s depreciation came amid the government change, as well as amid concerns that Greece would leave the euro zone. Tensions continued into June.
The Romanian central bank has intervened on several occasion on the forex market in the past few weeks to support the leu, dealers say. But this has to some degree reduced market liquidity, which in turn reflected in the interbank deposit interest rates, which rose by around one percent against April.
Three and six-month Robor rates, used as references for most credit contracts, are currently at 5.38%-5.47% a year.
“The liquidity squeeze is increasingly apparent. Either because of the interventions of the central bank on the forex market (to sell euros and buy lei) or because of the higher risk aversion,” comments Catalina Molnar, senior economist of RBS Bank.
The liquidity squeeze on the market is reflected both in the amount of repo operations and in the record number of participants of the past few weeks.
The Romanian central bank lent on Monday to 12 commercial banks through a repo auction RON11.5 billion for a week, after last Monday 13 banks had borrowed a record amount for such auctions from the central bank, RON12.1 billion. Repo operations are a six-day repurchase agreement operation at an interest rate of 5.25% a year, equal to the monetary policy rate.
(English version by Daniela Stoican)