The domestic market in January 2014 felt the fallout from turmoil enveloping several emerging markets and foreign capital withdrawals were also visible at the level of the RON/EUR exchange rate that has leapt toward 4.55 RON/EUR.
During the entire 2013 foreigners’ holdings on the domestic state paper market had stayed above the EUR5 billion threshold after the EUR2 billion leap registered in January amid news about Romania’s being included in one of JP Morgan’s emerging market indices. Last spring had brought a strong increase in foreign investors’ interest, so that in May non-residents’ portfolio had got close to EUR7 billion.
Market international jitters triggered inclusively by fears related to the US central bank’s step to withdraw monetary incentives led to a direction reversal in the following months. In autumn, foreign investors’ portfolio had stabilized around EUR6 billion before dropping to EUR5.1 billion in December.
The January 2014 stock was EUR2 billion below the peak reached in May 2013.
While analysts initially considered the increase in the weight of foreigners on the domestic state paper market to over 25% of the total as risky, external conditions wiped out this risk, so that the rate of holdings rapidly slid to less than 20%.
The Finance Ministry plans to gradually reduce EUR-denominated state paper issues domestically and maintain a minimum value of such bonds that should guarantee their liquidity.
Since the start of this year, the State Treasury has launched three EUR five-year bond issues through which it raised almost EUR700 million in the context where banks had more foreign currency available after the central bank in January reduced the rate of minimum compulsory reserves from 20% to 18%.
As regards external funding, the Finances will contract mainly EUR-denominated debt.
Last year, debt contracted from external sources amounted to EUR4.6 billion.
(English version by Catalina Apostoiu)