The result is that short-term ROBOR fell abruptly in the past week, with one-day ROBOR even falling below 2% on Tuesday. One-month ROBOR, an indicator used as a cost base for loans in lei, was 5.26% on Tuesday, basically the same as the BNR’s monetary policy interest rate. The interest rate decline was also fuelled by the significant liquidity injections made by the central bank in the past few weeks through repo operations, while interventions on the forex market to alleviate leu depreciation pressures proved modest.
BNR and the Finance Ministry, which make coordinated efforts on the market, tend to favor keeping interest rates at low levels, able to sustain the state’s financing and private lending, rather than protect the leu and clients with foreign currency loans.
The EUR/RON exchange rate hit a new historic high on Tuesday, with the central bank calculating a reference of RON4.5651 to the euro. Finance Minister Florin Georgescu, who used to be first vice-governor of the BNR, and is set to return to this post in November, said Monday on a news channel that he expected the euro to fall to RON4.5 and even below this mark after the July 29 referendum on whether to dismiss president Traian Basescu.
“The leu will depreciate after this whole situation on the political scene [is clarified] and investors regain confidence in our national currency,” Georgescu said.
In the past the Romanian central bank responded to forex market tensions by increasing interest rates on amounts in lei, and this increase appeared also as a result of euro sales.
Now the risk of higher inflation and of more past due loans in foreign currency seems to have been overlooked, with interest rate stability being preferred.
In order leave banks with little room for maneuver, the Finance Ministry has significantly narrowed the volume of government securities scheduled for June and July. In June out of RON3.5 billion, the Finance Ministry only took 40% from the market, while in July it borrowed 70% out of a total announced amount of just RON2.25 billion. Earlier in the year the Treasury used to absorb over RON4 billion per month from the market, taking advantage of the steady interest rate decline.
The state has also dramatically narrowed its offering of short-term securities, scheduling one single auction for T-bills with 11-month maturity in July, worth RON700 million.
Under the circumstances, the bank’s investment alternatives are significantly narrower because during the periods when the market expects interest rate increases, demand for short-term instruments is on the rise. This time the Finance Ministry reduced the offering of such instruments as much as possible, putting pressure on bank treasurers to consider investments in securities with maturities of at least two years. (EUR1=RON4.5651)
(English version by Daniela Stoican)