“This is the biggest liquidity shortage since 2009, which saw severe episodes of liquidity stress, and may seem striking since cash rates moved significantly lower in December (about 100 basis points on the swap market and around 50bp on the lazier depo market,” the report noted.
ING analysts said the money attracted were used mostly to finance the Finance Ministry’s activity.
“Our explanation is that the public debt issuance from December was mostly financed through the regular open-market operations of the central bank (thus increasing the money banks borrowed from the central bank), while many other bondholders saw increases in liquidity as they did not rollover (an apparently large share of) maturing public debt,” the report noted.
Liquidity in the system improved further probably as a result of likely large public expenditures of the December which, based also on the proceeds of the debt issuance that was ultimately financed through central bank open market operations, ING said.